[B]New Zealand Dollar Interest Rate Bias: Bearish[/B]
The New Zealand Dollar boasts the highest short-term yields of any G10 currency, but we see that sharply negative interest rate expectations leave rate bias decidedly negative for the previously high-flying NZDUSD. 2-Year NZD yields currently trade a full 100 basis points below their 3-month equivalent, as interest rate traders price in aggressive interest rate cuts from the Reserve Bank of New Zealand. Given that the NZD previously rallied on its sizeable yield advantage versus major forex counterparts, such developments leave a decidedly bearish bias for the currency itself. Indeed, if it sees its sizeable carry advantage fade, the New Zealand dollar may embark on a sizeable medium-to-long-term downtrend against lower-yielding forex counterparts.
