New Zealand Dollar: Gulf re-escalation favours Kiwi outperformance – ING

ING strategist Francesco Pesole notes that the New Zealand Dollar is the best-performing G10 currency since early week, boosted by last week’s RBNZ rate hike and hawkish repricing. He says FX markets are rewarding currencies with scope for further domestic tightening, beyond commodity exposure. However, he judges current pricing of 60bp additional RBNZ tightening as too aggressive and expects AUD to regain ground versus NZD if tensions ease.

Kiwi leads G10 on RBNZ repricing

"The Kiwi dollar is the best-performing currency in the G10 since the start of this week, riding the wave of last week’s hawkish repricing after an RBNZ rate hike."

"It’s a testament to how the FX market is very keen to reward currencies that can offer flexibility on the hawkish side for domestic central bank pricing, not just the positive commodity exposure (like for CAD, NOK, AUD)."

"Still, markets are now pricing in 60bp of tightening by year-end in New Zealand, which looks a bit too aggressive before seeing 2Q CPI, which is released on 20 July."

"AUD should recover some ground over NZD should this escalation fail to defuse."