NAB Research discusses NZD outlook and highlights that NZD/USD screens cheap on its valuation model metrics.
"The currency is looking rather cheap on our shortterm fair value model. Our model estimate bottomed around 0.65 in August and has pushed up to above 0.68, driven by higher risk appetite and higher NZ commodity prices. Last week, the gap between the spot rate and fair value was as much as 7%, the greatest deviation on this model since 2013. CFTC data show historically large net short speculative positioning in the NZD," NAB notes.
"This suggests that the NZD is pricing in a lot of bad news and it wouldn’t take much to see the pair break higher," NAB adds.