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Forex Flash: Kiwi at 0.87 by year end - BNZ

With NZD/USD last at 0.8357 retracing part of the fall the pair has had since the very start of the week when reached fresh 8-week highs around the 0.8490, down to yesterday's fresh 6-day lows at 0.8297 on a series of bad economic data, Currency Strategist at BNZ Mike Jones wonders if Kiwi “Could hit 0.9000.”

He's “always been a little dubious,” the analyst says, “But things are changing. The way we see NZD fundamentals evolving in 2013 means we can no longer rule out a NZD/USD push up to 0.9000 this year. To take account of this risk, we have revised up all of our NZD forecasts,” Mike adds.

“We now see the NZD/USD at 0.8700 by year-end. However, our expectations about the timing and duration of the NZD cycle haven’t really changed. In essence, a higher ‘peak’ in the NZD/USD means a harsher correction is likely to follow in 2014,” he continues.

From BNZ: “Indeed, this correction is now anticipated to be even sharper than before. A NZD/USD above 0.8500 is unsustainable. It will worsen external balances, put more pressure on the export sector, and keep interest rates lower than would otherwise be the case.”

“In other words, the higher the NZD/USD rises this year, the bigger the eventual correction. After appreciation through 2013, we expect the NZD/USD to fall back to 0.7600 by end 2014,” Mr. Jones concludes.

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