“The NZD/USD exchange rate has mirrored the pathway of the S&P500 index, which shows a rebound in risk appetite,” Westpac strategy head Imre Speizer said.
When NZ went into lockdown the NZD/USD cross rate was in a 10-day slump that touched US56c briefly.
It has now risen to 65c, which is about the average rate of the past 12 months.
Spiezer thinks it might go higher, perhaps 67c, before settling back as the economic news worsens, to about 58-59c.
Producers and exporters would welcome a more sustained fall.
“Market sentiment has turned around since late March as NZ got on top of covid-19 and the economic data hasn’t been as first feared.
“Also, central banks have printed bucketloads of money, including ours for the first time.
“Investors are back to buying riskier equities and riskier currencies, like the NZD.
“But the Kiwi is getting stretched and the latest run is looking tired and we have the prospect of less-cheerful financial news to come.”
The fall against the Australian dollar has been quite noteworthy too.
After being within touching distance of parity in mid March the cross rate has dropped to 92-93c as world markets believe Australia’s covid-19 story is the best.
Speizer thinks the NZD/AUD might reach 95c again in the short term but then fall to about 90c by year-end.
The NZD has appreciated 7.5% against the pound sterling from a bottom of 47.75p in early April to 51.25p now.
“But if market news really gets bad the Kiwi and the Aussie dollars will get clobbered and the safer currencies like sterling, euro and yen will hold up better.
“High-risk, commodity currencies get belted and the medium-risk ones stay more stable.”
BNZ strategist Jason Wong said the S&P/NZX50 index has risen 30% from its lowest point on March 23 to now.
“The bounce back reflects that we are probably in the best position that anyone could have imagined two months ago.”
That optimism is reflected in the strength of the dollar, the bond markets and the prices of commodities.
