Despite a probable RBNZ interest rates hike on 13 March, markets have picked on the NZD to express negative sentiment towards risky assets globally. That may be because the NZD has one of the highest betas (sensitivity to risky assets) among the world’s major currencies. In addition, the NZD was a top performer in 2013, making it an attractive mean-reversion trade. If 0.8085 gives way, we’ll target 0.7900 during the weeks ahead.We expect NZD weakness could continue during the next few weeks and possibly until 13 March, when an RBNZ hike should mark a turnaround. By mid-2014 NZ’s strong fundamentals and increasing interest rate differentials should push NZD/USD towards 0.8550. The main risk to this longer term outlook is that US fundamentals exceed our expectations, causing the US dollar to outperform.
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Westpac