NZD is strong for good reason and is likely to remain that way - BNZ
Jason Wong, Currency Strategist at BNZ, suggests that the NZD has typically traded above long-term fair value for such a long time owing to the above-normal terms of trade
Key Quotes
“On a TWI basis, the NZD has traded above our long-term (PPP) fair value estimate for much of the past 12 years, supported by NZ's strong terms of trade. The current level of the TWI is about 7% above our longterm FV estimate, which is actually below the average "valuation" gap of the past 12 years.”
“There are large divergences on the crosses, with the NZD well above long-term FV against EUR, GBP, JPY and CAD. The NZD is below FV against CNY, while only slightly above against USD and AUD.”
“Our projections suggest more of the same, with little in the way of the closing of the gap with long-term FV over the coming year on most of the crosses.”
“Overall, our TWI projections hover within a few percent of the current level through the next couple of years, given the mixed view on the crosses. In an overall sense then, the NZD is expected to remain a “strong” currency, leaving it above long-term fair value for some time.”
“We strongly disagree with RBNZ Governor Wheeler’s belief that “the exchange rate is higher than the economic fundamentals would suggest is appropriate.” The NZD is strong for good reason and is likely to remain that way.”
Author
Sandeep Kanihama
FXStreet Contributor
Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.
