Forex Flash: Kiwi underperformance concentrated in NZD/AUD – BNZ

The NZDUSD spent nearly all of October shuffling sideways in an elevated 0.8145-0.8240 range and it was largely a story of offsetting drivers. The local market's eagerness to price in RBNZ rate cuts eroded some of the currency's yield advantage, however, this headwind was offset by investors' increasing confidence in the global economy and healthy risk appetite.

"Looking ahead, with the risk of an RBNZ interest rate cut now very real, the NZDUSD topside looks unlikely to be tested. Still, we doubt we're on the cusp of a substantial downward correction. Our expectation of ongoing global optimism and rising NZ commodity prices means our year-end 0.8200 forecast for the NZDUSD still looks about right." portends the BNZ Research Team.

"Near-term, we expect dips will be limited to 0.8080. Any NZD underperformance will be concentrated in the NZD/AUD, in our view. NZ-AU interest rate differentials have become more negative over the past fortnight with robust Australian economic data providing some contrast to the mixed NZ data set. This, combined with the break below 0.7875 support, sets the cross up for a possible move back down into the 0.7700-0.7800 range over the next few weeks." the team warns.