Forex Flash: Growth and interest rate differentials to support NZD – NAB

FXstreet.com (Barcelona) - The NZD currently sits close to the bottom of its range of the past few weeks, and remains vulnerable to any downshift in global risk appetite. "However, we see growth and interest rate differentials continuing to support the currency over the medium-term and as such we maintain our end of year NZDUSD forecast at 0.8200." writes the NAB Analyst Team.

Moving along, swap spreads continue to trade choppily within a relatively tight range. "With spreads currently trading near bottom of ranges, this suggests the nimble could position for some widening - we do not see a prolonged widening of spreads until demand for NZGBs at DMO auctions shows consistent improvement." the Team posits.

Ultimately, the NZ CPI release may create opportunities to pay at the short-end of the curve. The market looks for a 1% outcome and BNZ has a 0.9% forecast. "The market may thus extrapolate a low-side outcome to a continued downward trajectory in inflation, and thereby increase expectations of RBNZ rate cuts, however we do not expect cuts." they affirm.