NZD/USD Outlook: Near term momentum has perked up slightly since making a multiyear low at 0.7609 on 9 December. A break above 0.7890 would then target 0.7975 and above that 0.8035 (Chart 1). Supporting this view is the gradual exiting of speculative NZD short positions, and the waning of upside US data surprises which has not yet been responded to by the US dollar (Chart 3). This week’s main local event risk is from Wednesday’s Q4 CPI reading which we expect to be around 0.9% yoy – a minor downside surprise to the RBNZ which downgraded its forecast as recently as December. The data will also focus market attention on forecasts for Q1 inflation, these likely to be alarmingly low. Thus, we see downside risks for the NZD on the day. The main influence on the NZD this week will probably come from the ECB meeting (Thu). Market expectations for QE are high so a volatile session is in store.,
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