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NZD/USD Outlook: Kiwi Flying High, NZD Looking Overvalued

NZD/USD Outlook: Kiwi Flying High, NZD Looking Overvalued

Justin McQueen, Analyst

NZD/USD Price Analysis & News

  • Kiwi Continues to Fly
  • RBNZ In Focus for Kiwi Traders
  • Upside Looking Stretched with TWI Firmly Above RBNZ’s Projection
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Kiwi Continues to Fly

Once again, the Kiwi is flying high, hitting 0.7000 for the first time in 2yrs. The move stemming from reports overnight that the NZ Finance Minister sent a letter to the RBNZ to potentially consider adding house prices to the central bank’s remit. As such, given the current backdrop with NZ house prices surging to historically high levels, the suggestion is that such an addition would lower the prospects of further stimulus, subsequently, NZ 10yr yields rose 10bps, now above their Aussie counterparts.

NZD/USD MIXED
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 3% 4% 4%
Weekly 10% -7% -1%
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RBNZ In Focus for Kiwi Traders

The RBNZ provided an initial response in which they noted that the central bank already looks at house prices concerning financial stability risks. While also pushing back on the extent to which monetary policy can address the issue. Further commentary is expected from the RBNZ later today with the financial stability report due at 20:00GMT and Governor Orr to speak at 22:00GMT thus NZD implied vols have picked up.

Upside Looking Stretched with TWI Firmly Above RBNZ’s Projection

However, with NZD on course for its best month since Nov 2018, rising 5.5%, another concern for the RBNZ is the surge in NZD TWI, which is now firmly above its recent projection in the November MPS as the chart shows below. In turn, NZD valuations in the short-term appear stretched on the upside thus risk-rewards are moving in favour of a pullback.

NZD TWI vs RBNZ TWI FORECAST

NZD/USD Outlook: Kiwi Flying High, NZD Looking Overvalued

NZD/USD: Near-term resistance is situated at the psychological 0.7000 handle. While a move above opens up 0.7040, USD short squeezes are still a risk, as was seen yesterday. In turn, initial support on the downside is situated at 0.6920 with a move below putting 0.6900 and 0.6880 in focus.

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