Forex Flash: NZD/USD expected to reach 0.8050 – Westpac (Barcelona) - “Weighing on the NZD are the NZ economy’s soft patch in Q3, the US fiscal cliff, and Greece, which has been to a lesser extent, moderated partly by China’s optimistic recovery – as such, we expect the NZD/USD to gravitate towards 0.8050 this week.” writes the Westpac Strategy Team.

Our earlier concerns regarding Q3 economic data from NZ have been confirmed by the dismal readings for employment and retail sales. According to the team, “There’s more to come, notably from GDP on 20 Dec, so markets are likely to remain nervy and of a bond-bullish disposition. We expect 2.50% for the 2yr swap will be tested this week, but any lower will require fresh news raising the likelihood the RBNZ will cut the OCR.”

“In regards to the NZ curve, we expect a string of weak NZ data over the next five weeks to encourage pricing of RBNZ easing, depressing the front end of the curve. If that is matched by a stable off shore environment, mild steepening towards 110bp should result.” they warn.