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17 Jul 2013
Flash: NZD/USD trading at fair value – BNZ
FXstreet.com (New York) - Most of Bernanke’s address was directed toward stressing QE tapering is not yet locked and loaded, and remains highly conditional on the strength of the US economy, notes Mike Jones, an analyst at BNZ.
As a result, markets have backed off pricing September as the most likely tapering start date. US interest rates have slipped as a result. Notably, this has bolstered the relative yield advantage of the NZD/USD. NZ-US 2-year swap rate differentials have risen to 275bps, the highest since September 2011.
According to Jones, “All told, Bernanke’s testimony leaves us more comfortable with our view that the NZD/USD is more likely to stabilize in a sideways, to slightly higher range, than to keep falling. Short-term ‘fair-value’ according to our valuation model is still seen in a 0.7850-0.8250 range. As long as Chinese growth concerns remain at bay, we suspect the NZD/USD will spend most of the next few weeks inside this range.”
As a result, markets have backed off pricing September as the most likely tapering start date. US interest rates have slipped as a result. Notably, this has bolstered the relative yield advantage of the NZD/USD. NZ-US 2-year swap rate differentials have risen to 275bps, the highest since September 2011.
According to Jones, “All told, Bernanke’s testimony leaves us more comfortable with our view that the NZD/USD is more likely to stabilize in a sideways, to slightly higher range, than to keep falling. Short-term ‘fair-value’ according to our valuation model is still seen in a 0.7850-0.8250 range. As long as Chinese growth concerns remain at bay, we suspect the NZD/USD will spend most of the next few weeks inside this range.”