We continue to see the NZD as the most overvalued G10 currency. Timing is always difficult and hence we enter this trade through a long-dated option. NZD is approaching levels where the RBNZ has previously intervened in the FX market and although the outlook for the NZ economy continues to improve it is unlikely the central bank will lower the stance on the “overvalued kiwi”. Looking at a Taylor rule for Norway vs NZ shows a substantial gap and divergence going forward as regards policy rates (higher rates in Norway vs unchanged to lower in NZ) – over time the positive carry and yield spread should decrease showing the way for a lower NZD/NOK. Norges Bank today revised its rate path in-line with our own and market expectations looking for a first rate hike now in Q2/Q3 2014. The central bank downplays the implications of CPI-ATE being at the inflation target currently, but we are not convinced we will see a major moderation going forward. The I44 forecast meanwhile points to a slightly stronger NOK over time (2% trade-weighted).
Read full report: FX Ringside
SEB