BNZ: Upside Risk Developing

BNZ note that "while the NZD has tracked sideways this year so far, we think there are some upside risks bubbling underneath the surface. The global backdrop remains highly supportive, namely, the rollout of vaccines that support the global economic outlook and higher commodity prices. Furthermore, the flow of domestic data point to higher inflationary pressure and the RBNZ making good inroads into meeting its dual mandate. For now, we leave our NZD projections unchanged, but flag that risks are building to the upside. Our current projections show the NZD appreciating to "only" USD0.76 by year end and the risk is for a sharper appreciation. Given that our projections already incorporate a weaker USD across the board, the greater risk for our NZD projections is on the crosses. Rather than settle a touch lower from current spot, our relative RBNZ versus RBA monetary policy projections would be more consistent with the cross moving sustainably back up through AUD0.95 at some stage."