NZD/EUR: Strong cross to be sustained – BNZ

Jason Wong, Currency Strategist at BNZ, notes that the NZD/EUR exchange rate has been very strong over the past five years, albeit with no clear trend.

Key Quotes

“The average rate of EUR0.6250 over the past five years and the current spot are well above our PPP estimate of 0.5430.

Cyclical factors can largely explain why NZD/EUR trades well above trend. NZ’s strong terms of trade and the historically high NZD-EUR short rate differential go a long way to explaining current spot.

Our projections show NZD/EUR holding up at historically high levels over the next couple of years, circa 0.62-0.65. While this seems uninspiring, one would typically project a currency to revert towards its long-term trend. By not doing so, our message is that the NZD is likely to remain very strong against EUR for another few years, a challenging environment for exporters to that region.”