CIBC Research discusses NZD/USD outlook and adopts a bullish bias over the medium-term.
"RBNZ hawkishness that began in 2021 will continue this year. The earlier start than other major central banks might have been suggestive of being able to do more then and less later. Though as elsewhere, inflationary pressures, and in the particular case of New Zealand, labour and wage pressures remain. For the currency, the currently priced terminal rate referencing 5y5y swaps and relationship with the value of the currency, shows the NZD/USD as undervalued. The undervaluation is similar when considering the spread between 10year bond yields and NZD/USD," CIBC notes.
"As the market begins to refocus on New Zealand data and the likely path of RBNZ tightening - we expect the NZ policy rate to reach 2.00% in 1Q next year- we see support for NZD/USD building," CIBC adds.