NZD looks vulnerable - ANZ

Analysts at ANZ suggest that NZD has seen a rather sudden run-up and looks vulnerable as the correction seen on Friday night may have further to run.

Key Quotes

“In particular, the strong run-up in both the AUD and NZD has occurred despite a significant narrowing in yield differentials. In fact, the spread between the New Zealand and US 10-year bond yield, at just 12bps, is the narrowest it has been since 1994. The 2-year swap differential has actually turned negative, with US 2-year bonds yielding 22bp more than their NZ equivalent. FX markets have pretty much ignored this dynamic, instead showing a far higher correlation to the likes of commodities and broader USD trends.”

“We’re not convinced that can persist, and feel the NZD is looking stretched. The NZD can change horses with little warning between commodity prices, interest rate (or growth) differentials, and global risk aversion, and we do wonder if that might be one of those times when the drivers change. What’s more, we don’t believe upcoming domestic events are going to be a catalyst to justify the recent NZD strength either.”