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The New Zealand dollar fell significantly this week after a move by the government to curb the housing bubble caused a re-pricing of the central bank’s hawkish expectations. Economists at ING believe NZD/USD appears to have most of the negatives in the price and expect the kiwi to move above the 0.75 mark in the second half of the year.

Key quotes  

“Given the highly positive beta of NZD (and the negative beta of USD) to global risk appetite, the near-term outlook for NZD/USD remains strictly dependent on external factors. Even if risk appetite remains choppy in the next weeks, we think that NZD should experience more limited downside pressure than other pro-cyclical currencies, considering the factors highlighted above.”

“Beyond the very short-term, some further stabilisation in the bond market will be needed to allow a rebound in commodity currencies and generate some fresh selling pressure on USD. We think yields will continue to rise in 2021 but possibly in a more controlled manner once investors feel yields are pricing the right amount of future inflation. This may happen already in 2Q21, and with the global reflationary narrative consolidating, we expect NZD to be at the forefront of any pro-cyclical rally.”

“We remain in the view that NZD/USD will move above the 0.75 mark in the second half of the year.”  

“In the short-term, the correction in the kiwi may struggle to go much further barring a material risk-off shift by the market, and the 0.6870 200-day moving average may prove to be a solid support even in case of a continuation of the current NZD weakness.”