NZD Yield Advantage Rising, Mkt Pulls Back On RBNZ Easing Expectations

The New Zealand dollar's yield advantage has risen as OIS markets pare bets on easing by the Reserve Bank of New Zealand this week, says BNZ FX Strategist Mike Jones in a morning report. The RBNZ rate decision is Thursday. Jones notes that NZ-US 3-year swap differentials now sit at around 205 bps, up from around 180 bps at the start of last week. That, coupled with improving risk appetite and better global dairy prices "tends to accord with our oft-stated view that dips in the NZD/USD are likely to be short-lived in the absence of clearer signs of contagion from Europe to the rest of the world." The pair is at 0.7766 and Jones says his year-end forecast remains 0.8100.