NZD/USD to continue tracking to stronger levels as the economy rebounds – CIBC

After consolidation through mid-2020, much of it related to caution over impacts of containing the virus, NZD/USD performed strongly in the last two months of the year. Economists at CIBC Capital Markets look for further strength in the kiwi amidst a broadly weaker USD and economic recovery.

Key quotes

“One point of caution is regarding the RBNZ’s attitude towards the stronger currency. The bank has previously raised the notion of using tools to slow the currency’s ascent. Having walked the market back from expectations of negative cash rates through comments at their November meeting, we expect we may hear the topic raised again at the first RBNZ meeting of the year in late February.”

“Global reflation confidence is buoyant, but on that which is related to vaccines, we note that New Zealand is adopting a ‘wait-and-see’ approach, i.e. not beginning vaccinations for some time. The success of that approach is uncertain.”

“The economy has weathered the virus challenges well and recovery is underway, though a continued shut-off from the rest of the world may be a future challenge. We forecast gains for the NZD against the USD, but anticipate some underperformance against the AUD.”

“Q1 2021: 0.73 | Q2 2021: 0.74”