Pair Off Multi Month Highs But Supported By Weaker US Dollar And Improved Forecasts

NZD/USD flat so far in Asia, last at 0.7087, a little off session highs of 0.7098 hit in the US session. Once again the driver of the move higher was a weaker US dollar which touched a two year low as hopes for a stimulus package increased after Senate Majority Leader McConnell acknowledged Biden as the President-elect and said the Senate would not adjourn for the year without a relief package.

• Earlier in the session the New Zealand Treasury released its half year economic fiscal update. The release had little effect on markets, but outlined a slightly more positive case than the previous update. 2020/21 annual average GDP growth is forecast at 1.5% compared to the previous estimate of -0.5%, while the 2020/21 bond programme forecast has been cut to NZD 31.7bn. Forecasts for unemployment were downgraded to 6.9% from 7.8%.
• NZD/USD is down approximately 30 pips from yesterday's multi‑month high of 0.7120. In a note CBA point out that "NZD/USD is overvalued relative to the level implied by real NZ‑US two‑year swap rate differentials. However, NZD/USD is undervalued compared to NZ/US terms of trade trend and around equilibrium relative to whole milk powder prices."