FXstreet.com (Barcelona) - The Bank of New Zealand has published a note to clients in which goes thru a new model which intends to predict the long-run equilibrium of the NZD. According to the bank's research team, the new long-run equilibrium model "is currently higher than conventional wisdom and PPP suggest, thus the NZD is not as ‘overvalued’ as many think."
BNZ summary note reads: "Obtaining an estimate of the long-run equilibrium (LRE) of the NZ dollar is important for thinking about currency exposures at a 3-5 year time horizon. Our new terms of trade adjusted PPP model indicates the LRE of the NZD is higher than conventional wisdom or simple PPP suggests. For NZD/USD, it is 0.7100. For the NZD/AUD it is a low-sounding 0.7700."
These estimates, according to BNZ, "support our forecasts for the NZD/USD to hold up, but suggest our NZD/AUD forecasts could be a bit strong."
BNZ summary note reads: "Obtaining an estimate of the long-run equilibrium (LRE) of the NZ dollar is important for thinking about currency exposures at a 3-5 year time horizon. Our new terms of trade adjusted PPP model indicates the LRE of the NZD is higher than conventional wisdom or simple PPP suggests. For NZD/USD, it is 0.7100. For the NZD/AUD it is a low-sounding 0.7700."
These estimates, according to BNZ, "support our forecasts for the NZD/USD to hold up, but suggest our NZD/AUD forecasts could be a bit strong."
