The New Zealand Dollar underperformed midweek, continuing a recent trend that has already put a floor under GBP/NZD and which could be a microcosm of a broader 2021 trend as a combination of economic recovery and interest rate cuts put further pressure on “real yield” returns to investors in New Zealand. 

The New Zealand Dollar remained an outperformer on Tuesday as investors continued to reward a brighter domestic economic backdrop that may remain a headwind for the Pound-to-New Zealand Dollar rate even if the UK government is successful in securing a Brexit trade deal. 

The New Zealand Dollar was outperforming all major rivals Thursday as risks assets rose on a wave of ambivalent exuberance that is increasingly seeing bad news fall by the way side as investors trade the path to a global economic recovery. 

The Australian Dollar outlook remains "mildly bearish" amid a deteriorated outlook for so-called risk assets, according to analysts at Australia & New Zealand Banking Group, who say the Antipodean currency will remain at the mercy of the global market environment during the weeks ahead.

"Increasingly, the doomsday interpretation seems overdrawn" says Brian Martin at ANZ with regards to a 'no deal' Brexit.

"For the AUD and NZD, better news around China is nearly absorbed and over the rest of the year we remain bearish on both" - ANZ.

The decline in Pound Sterling could offer speculators the chance to profit on a recovery, according to strategists at ANZ Research - an arm of Australia-based multi-national investment bank ANZ.

Analysis from researchers at ANZ Bank suggests a 'risk premium' is now at play in Sterling and it will be hard to shake, ensuring the currency stays below where it should be for a protracted period of time.

“In a general equilibrium world, the euro area’s twin surplus could make a case for moderate EUR overvaluation,” - ANZ

“Until we see some evidence of wages growth, the RBA will remain on the sideline, and the AUD will continue to be dictated to by global forces,” - ANZ Bank.

For the New Zealand Dollar, it would appear that the balance of risks against its G10 partners is to the downside.

“Our analysis suggests that the AUD will likely become less sensitive to the narrowing in rate spreads that we are forecasting, risk appetite could decline in importance as a driver of the AUD" - Daniel Been at ANZ.

“The Pound looks cheap at current levels.”

As central banks shift the responsibility of growth to government’s ANZ bank analyse the possible outcomes for the New Zealand dollar.

The Australian Dollar has more strength to give over the near-term but should decline in value through the course of 2017.

Those looking to profit on a rising AUD/USD exchange rate should be aware that a limit could be reached by the time this quarter is out.

The Australian and New Zealand dollars have rallied as risks relating to the EU referendum start to fade. But, it is not time to throw everything into a bet on an AUD and NZD recovery.

Analysts at one of Australia’s leading foreign exchange research houses say the Australian dollar’s recent bout of strength “has been somewhat exaggerated.”

ANZ Research still see another RBNZ interest rate cut in 2016, however the timing of the cut has been delayed ensuring the New Zealand dollar should remain buoyant.

The British pound has caught many in the markets by surprise having rallied through April. There is more to come argue strategists at ANZ Research.