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Rate Differentials, Commodities Driving Kiwi

NZD

NZD/USD was pressured last week, down ~1% through the week dealing in a 2 cent range. The table below presents levels of correlations between NZD and key macro drivers (note the yield differential reflects swap rates).

  • Yield differentials and global commodities were the dominant macro drivers in NZD in recent dealing, agriculture and milk prices also weighed on the NZD.
  • Over the longer term, yield differential and global commodities continue to be the main driver in NZD.
  • NZD/USD still looks too high relative to yield spreads. The 2yr NZ-US spread is up slightly from recent lows near +20bps, last around +36bps. Near term sentiment is likely to be dictated by tomorrow's RBNZ decision, +50bps is the consensus.
  • Longer term resilience in milk prices hasn't aided the Kiwi at this stage.

Fig 1: NZD/USD Correlation with Global Macro Drivers:


Source: MNI - Market News/Bloomberg

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