Forex Flash: Low global bond yields constraining NZ yields – Westpac

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FXstreet.com (Barcelona) - "The recent weakness in the NZ economy has been recognized by the interest rate markets, which currently price in one OCR cut by June 2013. Interestingly, while the NZD has underperformed the June-September global equities rally, resulting in the weaker relationship between it and risk sentiment, it has also diverged from NZ interest rates, resulting in the weaker relationship between it and interest rates. Historically low global bond yields, influenced by QE, are constraining NZ yields." notes Global Strategist Imre Speizer at Westpac.

According to Speizer, "Taking a much longer term and theoretical perspective, the NZD remains overvalued. Compared to its post float history though, it is extremely elevated. However this approach is too simplistic and pays no heed to the positive drift in the price distribution evident on page 14. Our PPP-based model (compares real exchange rate to its average) currently indicates a 32% overvaluation, still significant but less so than the 45% seen when NZD/USD was at its record high in August 2011."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Forex and Currencies

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