Currencies have gained ground vs the U.S. dollar as it declines across the board. Questioning which side of the basket may look overdone seems fair given the levels of the greenback downturn
Below, a chart showing NZD/USD vs its 2-year yield spread. While the kiwi reaches close to its best levels of the year, front-end spreads have rebounded from the RBNZ rate cut but remain within range
Of course, this is a Fed driven market and Orr's comments are a thing of the past. However, we're still some time from the end of the year and markets expectations of Fed easing remain too optimistic
My reasoning for kiwi/dollar is this. A soft landing (better US data) may favour a paring of easing pricing and stronger dollar. But, a hard landing, deep recession pricing is not a scenario where the kiwi would outperform. In fact, a simple regression has shown NZD is the bottom G10 performer during recessions
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