NZD/USD outlook

Yesterday's sharp reversal suggests further NZD/USD's corrective behaviour today towards 0.6600. Given the slightly lower US and Australian yields overnight, NZ 2yr swap rates should open down1bp at 2.70%, while the 10yr should open down 1bp at 3.54%.

Short maturity NZ interest rates should fall further during the next few months with the RBNZ likely to deliver another 25bp at the December meeting. A 2yr swap rate of 2.65% is expected. The 10yr yield will be partly influenced by the RBNZ's easing cycle but will also be hostage to expectations Fed policy will tighten (3.70%).

"Eventual resumption of the strong US dollar trend should weigh on the NZD during the next few months. 0.6200 can be targetted, which was a low in July 2009. The two main factors expected to contribute to NZD/USD weakness are RBNZ easing (the OCR is expected to fall to 2.00% by early next year) and eventual Fed tightening", says Westpac.