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Kiwi May Rise Above 70 Cents as Negative Interest Rate Bets Wane

The New Zealand dollar may extend gains after appreciating 4% this month as negative interest-rate bets fade and the global outlook improves.

The kiwi could climb above 70 U.S. cents this year as the domestic economy improves with the help of the central bank’s loan facility which is aimed at lowering funding costs, according to strategists. The Reserve Bank of New Zealand said it’s less likely to impose a negative official cash rate if financial institutions utilize the Funding for Lending Program.

New Zealand’s currency has outpaced most of its major peers so far in November as risk appetite improves on the back of positive Covid-19 vaccine developments and a resilient Chinese economy. It was trading around 69 cents on Thursday.
Here are some strategists’ views on the outlook for the kiwi:

Westpac Banking Corp. (Imre Speizer)

  • Expects kiwi to rally above 70 cents by year-end as the dollar weakens again on improved global sentiment. New Zealand’s economy, especially housing, has been resilient and will strengthen with the help of the FLP
  • “The RBNZ yesterday and today signaled that it acknowledges the stronger economy, and that if the FLP causes mortgage rates to fall significantly, then there will be less need to cut the OCR to negative”

HSBC Holdings Plc (Tom Nash)

  • “As fourth-quarter event risk clears, we think there will be more differentiation across G-10 FX on the basis of the strength and durability of the recovery in each economy. This bodes well for the NZD with growth proving resilient and all policy levers being used flexibly”
  • Negative rates could temper this out-performance although NZD/USD is still expected to reach 0.70 by mid-2021 after settling near 0.68 this year

Bank of New Zealand (Jason Wong)

  • The kiwi’s rally could push it above 70 cents this year, now that the central bank seems further from cutting interest rates below zero than previously thought
  • Currency will also get a lift from a weakening greenback

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