NZD/USD doesn’t “deserve” to go much lower than 0.68/0.69 - BNZ

According to the Currency Research Team at the Bank of New Zealand, point out that the recent decline of the Kiwi was exaggerated by unjustified net long positioning, alongside the broadly based recovery in the USD. They see strong support for NZD/USD at 0.68/0.69.

Key Quotes:

“Market sentiment for the NZD has been poor, evidenced by the near-7% plunge since recently peaking on 12-April, from around USD 0.74 to below USD 0.69. Unjustified net long positioning near the peak has exaggerated the move, alongside the broadly based recovery in the USD.”

“The market was far too positive on the NZD a month or two ago and sentiment for the USD got far too depressed. In terms of fundamental forces, some of the NZD weakness is fair to the extent that we have increased conviction of the RBNZ keeping policy on hold and increased conviction that the Fed will continue along its path of gradually raising interest rates. But a counterforce has been the strength of commodity prices, a supporting factor for the NZD. The bottom line is that we see no good reason to change our NZD forecasts. These show the NZD anchored around the 0.70-0.71 mark for much of the rest of the year which in practice can obviously mean excursions outside of this zone. Our short term fair value model estimate has been relatively steady between 0.70-0.73 all year, reflecting the ebb and flow of fundamental forces.”

“We still see strong technical support in a 0.68-0.69 zone. Fundamentally, the NZD doesn’t “deserve” to go much lower than that. Clearly, we can’t rule out a break of the lower edge of that support zone with the Kiwi-bears gathering and the USD still possibly in a mood to recover. But the more the NZD falls, the further it moves away from fundamentals.”