NZD/USD: Consolidation phase, year-end projection upgraded to 0.65 – BNZ

According to the BNZ Research Team, the NZD/USD pair remains in a consolidation phase with support/resistance defined by 0.62-0.6450. Their short-term fair value for NZD estimate rose further, ticking above the 0.69 mark and now up 4 cents since the August low, reflecting improving fundamentals. 

Key Quotes: 

“The “cheapness” of the NZD has now reached its greatest level in a decade, at 8½%. CFTC data suggest net speculative short positioning remains near a historical high, another factor highlighting how much unloved the NZD is at present. We think that part of the NZD’s underperformance last week might have been driven by
some nerves ahead of the RBNZ’s policy decision on Wednesday afternoon. Traders seem reluctant to push the NZD higher against a backdrop of improved fundamentals until the decision is out of the way."

“The policy decision is expected to be a close call, with the OIS market pricing a 64% chance of a 25bps cut. If there is indeed pent-up demand for the NZD, then a rate cut might only have a shortly-lived negative impact on the NZD. Removal of this risk event could then set the scene for the currency to gain some lost ground, and close the gap to our fair value estimate.”

“In the context of the improving fundamental backdrop and our higher fair value model estimate, a move to 0.65 hardly seems a stretch, as long as a trade deal is eventually signed.”