NZD/USD has dived below 0.67. As economists at AZN Bank note, NZD’s rate advantage is fading – that is the main theme at play now.

Kiwi is very sensitive to long-end bond spreads

“The kiwi is very sensitive to long-end bond spreads (a reasonable proxy for terminal cash rate expectations), and the latter continue to rise in the US.”

“NZ expectations have risen but with 125bps of hikes already ‘in the tin’ here (compared to just 25 in the US), and a peak OCR of 4.13% already priced in by the end of 2023, there’s arguably less scope for upside, which in turn could cap the NZD.”

“Broadly speaking, it’s a picture of other CB’s catching up on NZ’s erstwhile rate advantage.”