NZD/USD: Break below 0.6880 to delay the recovery – CIBC

After a peak above 0.7400 in late February and subsequent retrace on the back of a stronger USD, NZD/USD slid further recently on the introduction of government policies designed to cool and rebalance the domestic housing market. Looking ahead, economists at CIBC Capital Markets, expect a tempered pace of appreciation for the kiwi in the coming months. 

NZD/USD appreciation forecasts intact

“We still expect strength to occur. The basis for our positive view is underlined by a strong rebound in domestic activity, that in turn has been and will now remain supported by accommodative monetary and fiscal policy. Considering that, the current pullback to around 0.7000 allows entry to bullish trades, at levels we believe offer attractive risk reward.” 

“On the cautionary side, there are a handful of indicators which suggest previous undervaluation of the NZD has largely been unwound. The rate spread relationship is one. A greater risk for the NZD would come from a more protracted sell-off in risk assets more generally. We will continue to track these indicators and others for confirmation of support for the currency to rally toward our forecast target of 0.74/75. Else, for a deeper correction to be in prospect before that occurs.” 

“For NZD/USD 0.7000 is a key pivotal level, as is the 200-day moving average at 0.6880. A weekly close and period below either or both would suggest a return of upside will be delayed.”