NZD: TWI to outperform - ANZ

Analysts at ANZ suggests that the NZD is in a transition phase, and lists down the various factors responsible for that.

Key Quotes

• “Recovering global yields and expectations of NZ/US yield convergence as the Fed hikes and the RBNZ remains on hold;
• Question mark over whether the global liquidity cycle is coming to an end, which is leading to more defensive attitudes;
• Acceptance that this is as good as it gets for the local economy (growth is expected to moderate as capacity constraints bite and credit growth eases);
• The USD shining brightest; and
• More attention to volatility and less with absolute return.”

“This combination is leading the NZD/USD lower, but portends of continued elevation against other crosses and on a TWI basis.”

“While the market bias has shifted from a ‘buy dips’ to ‘sell rallies’ mind-set, we find it difficult to pencil in a solid declining trend:

• New Zealand’s growth credentials (3-4% GDP growth) still demand respect;

• The current account is stable and commodity prices have lifted;

• New Zealand continues to offer more stable political credentials and a better microeconomic policy platform, which ultimately supports growth;

• The allure of yield might have diminished but it still carries some shine;

• There is now an equal risk the next move by the RBNZ is up (especially if the NZD does weaken materially); and

• Clear challenges remain in other jurisdictions around the globe.”

“Accordingly, the NZD’s decline will be shallow.”