Analysts are still of the belief that the longer-term outlook for both NZD and AUD is biased to the downside despite recent strength.

Driving the trans-Tasmans higher was the NZ dollar surged in the wake of Governor Graeme Wheeler’s announcement that the Reserve Bank of New Zealand (RBNZ) has cut the Official Cash Rate (OCR) by 25bps to 2.50% and that no further policy change would be likely in the near term.

The move in NZD to the 0.6750 level confirms near-term momentum is biased to the upside, but, the currency still remains within a long-run bearish channel.

To firmly deviate from this down trend, the NZD needs a significant risk event that will support it but erode the strong USD sentiment that has griped the markets for months.

This scenario remains highly unlikely as the markets look forward to the Federal Open Market Committee policy meeting next week, when a US rate hike is greatly expected.

Thus, if this US rate hike materialises, the NZD if expected to show its underlying bearish nature with selling pressure likely to return which would ultimately lead the currency to the near linear downtrend trajectory of the past 6 months.

Currency brokers Blackwell Global says, “You will likely see the NZD fall sharply to trade well under the 65 cent handle. This would effectively return the currency to the near linear down trend of the past 6 months and bears would start to eye the lows around 0.6235 in short order.”

Comparitive Sterling / trans-Tasman rates at time of writing:

GBP to AUD: Market = 2.0757, high street bank avge = 2.0177, independent provider = 2.0508.

GBP to NZD: Market = 2.2430, high street bank avge = 2.1792, independent provider = 2.2151.

ABN AMRO: NZD/USD to Dip To 0.58 In 2016

"An upcoming rise in US interest rates, growing signs of economic weakness, the prospect of further domestic policy easing and

weak milk prices pose formidable obstacles," say Lloyds Bank.

ABN AMRO meanwhile acknowledge that the manufacturing and service sectors in New Zealand have shown resilience of late but the bank still sees risk of further RBNZ easing within the next six months.

But uncertainty surrounding the potential impact of El Nino on farmers and the persistence of low diary prices, the New Zealand unemployment rate is expected to tick higher by 20bp to 6.2% in 2016.

Therefore, while the NZD outlook may be short term positive, the long term remains negative, says ANB AMRO.

The bank states, “In the short term, there is upside risk to the NZD towards October’s peak of just below 0.69.

“We view that as a potential catalyst for the RBNZ to intervene in the currency market aggressively to weaken the NZD given their projections that the NZD will decline by more than 3% and 7% against its trade weighted basket of currencies by the end of 2015 and 2016 respectively.

“It is evident that they do not welcome the strength in the NZD since August and that further depreciation would be appropriate to support sustainable growth. Our 2015 year end NZD/USD forecast is 0.64.

“Looking ahead, we expect a combination of stronger US dollar and dovish RBNZ (via OCR cuts or intervention in the currency market) to exert downward pressure in the NZD to around 0.58 in 2016.”

Fade the AUD Rally

After a strong job report for the second consecutive month in Australia, the AUD ticked up to 0.7320.

In Australia, the November job report recorded 71,400 new jobs added, greatly surpassing market expectations of a 10,000 decline.

Participation in full time and part time job rose as well, and the unemployment rate declined to 5.8% from 5.9%, the lowest since April 2014.

But just as with the NZD, the AUD upside is not expected to last long term. (This view echoes that at ANZ who say the Aussie is defying gravity).

ABN AMRO explains, “The strong labour gains in October and November are inconsistent with other PMI employment indicators.

“The Australian Bureau Statistics has also stated that the strong jobs data print in October and November are due to rotating sample groups which has a positive bias on the participation rate and unemployment rate.

“Looking ahead, weaker house price inflation, continued divergence between the AUD and commodity export prices are likely catalysts for the Reserve Bank of Australia to lower the Official Cash Rate by 25bp in early 2016.This is not fully priced in by financial markets.

“We expect the AUD to decline to around 0.62 by the end of 2016. In our view, further strength in the AUD towards 0.7385 are good opportunities to fade the rally.”