NZD/USD: on the backfoot, yield advantage eroded - ANZ

Analysts at ANZ explained that the NZD has been on the back-foot recently, which is something they expect to continue. 

Key Quotes:

"With the global liquidity cycle tightening, global growth moderating and becoming less synchronised, and volatility shifting into a structurally higher regime, we are moving into an environment that will be more difficult for cyclical currencies. This is coming at a time when the NZD’s yield advantage has already been eroded."

"But the domestic economic picture remains reasonable and does still need to be respected. Growth is expected to hold around trend and the terms of trade are hovering near all-time highs. External imbalances – the NZD’s traditional Achilles Heel – are hardly alarming. This should limit the downside. However, domestic considerations are taking a backseat to global ones at present. "     

" On the crosses, our strongest views are for NZD underperformance against the ‘funding’ currencies of the EUR and JPY, although we see NZD/GBP weakness too. Against the AUD, the NZD has reached levels that look attractive to initiate shorts, but only in the context of a broad range-trading environment."