The NZD/USD barely budged overnight, despite most G10 currencies feeling the pinch of a broad-based strengthening in the greenback. It opens this morning around 0.8190. NZD/AUD buying largely squares the circle of the NZ dollar’s outperformance. Local swap yields continued their strong run yesterday, rising 2-3bps to fresh 2½ highs in the case of the two year. As a result, NZ-AU 3-year swap differentials widened from 69bps to 76bps, further bolstering ‘fundamental’ support for the cross. Macro and leveraged buying dragged NZD/AUD up to a fresh high of almost 0.8990 overnight. As we noted yesterday, positive momentum (our momentum model is long from 0.8850) and the daily close above previous resistance at 0.8925 means a further climb to 0.9000 looks to be on the cards for the NZD/AUD. This is a risk we have long flagged. We expect the cross to remain above 0.8800 for all of 2014
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