Goldman Sachs: Keeping Kiwi In G10 Commodity FX Basket Despite Pullback

Goldman Sachs note that "the New Zealand government announced a slate of targeted measures aimed at addressing housing affordability. This announcement triggered a sharp rally across the (FI) curve, eroding the extent of hiking priced into the front end - markets appear to have viewed these housing measures as likely to result in some tightening in the economy, thereby keeping the RBNZ on hold for longer. The New Zealand Dollar fell by more than 2% on the news, denting returns for our G10 commodity currency basket recommendation (long CAD, NOK, AUD, and NZD with equal weights vs USD). Since then, a portion of the move has reversed in the last couple of trading sessions. Heading into a quarter where the economic recovery is likely to accelerate and when we think the labor market data will be particularly resilient, we think there are limits to the extent the belly of the curve can rally. Of course, this will depend on how much actual tightening of economic conditions the NZ government's new measures will lead to, but on balance, given the other considerations, we see risks as tilted toward higher yields from here. We therefore have decided to keep NZD/USD in our basket recommendation."