NZD fair value estimate pushed up to 0.7590 - BNZ

Jason Wong, Senior Market Strategist at BNZ, suggests that rising risk appetite has pushed their fair value estimate for NZD up to 0.7590, but they still have some doubt over whether it will reach such a height this year.

Key Quotes

“The NZD remains vulnerable to any negative news, with net speculative long positioning remaining near a four-year high.  The last time speculative positioning was this one-sided, in April 2013, the NZD fell from 0.86 to 0.77 or around 10% over the subsequent three months.”

“Looking at the week ahead, locally the focus turns to tomorrow’s Q2 CPI release.  We expect a soft result of 0.1% q/q and 1.8% y/y (below the RBNZ’s pick back in May of 2.1% y/y, which didn’t have the benefit of knowing the recent tumble in oil prices).  While a soft result is widely anticipated, speculative positioning in the NZD has been increasing on the view that the RBNZ will be soon following the Bank of Canada in moving to a tightening bias and then tightening.  We don’t buy that view and see the RBNZ maintaining a neutral stance for some time.  If anything, inflation is tracking below its projections, given the combination of a stronger NZD and lower oil prices.  The CPI data should confirm this view.”