The pound sterling, euro and US dollar could be trading around their best achievable levels from a fundamental perspective against the New Zealand dollar.
Those waiting for a better GBP to NZD exchange rate should take note - we could be witnessing it right now.
According to Lloyds Bank Commercial Banking the New Zealand dollar may be approaching the bottom of its long-term downtrend.
While the NZD is said to be turning the corner, so too is the British pound. However, the UK currency is expected to turn lower with gains now behind it. The Lloyds view on the pound is mirrored in another report we have just published where S.E.B say sterling is now over-priced.
As such the GBP/NZD looks set to turn a corner lower following a protracted period of gains.
After the worst performance of any G10 currency this year, the New Zealand dollar has likely neared its bottom and is set for a modest recovery say analysts.
Expectations of another 25 bps interest rate cut from the central bank - the fourth consecutive cut and possibly the last – are largely priced in by domestic interest rate markets and therefore the exchange rates.
Pressure to the downside will only likely come should a fifth cut present itself.
"Milk prices, a key export for New Zealand, have also risen, albeit from a low base. This should provide further help for the New Zealand dollar," say Lloyds Bank.
According to Lloyds, even if the central bank continues to cut interest rates, a break below 0.60 against the USD would unlikely be sustained on a technical and fundamental basis.
"From here we look for a retracing of the recent weakness in the New Zealand dollar before the exchange rate stabilizes between 0.650-0.700," say Lloyds. At the time of publication the GBP/NZD rate is quoted at 2.3019.
Looking at the pound to NZ dollar exchange rate forecast GBPNZD is predicted to be at 2.56 by the end of 2015.
The rate will fall to 2.43 by mid-216 and 2.25 by the end of 2016. For a view of the full charts from Lloyds, please see here.
Analyst Kathy Lien at BK Asset Management has meanwhile expressed her surprise at recent NZD weakness noting that the latest comments from RBNZ Governor Wheeler was positive.
The Governor said NZ's economy performed better than others and while he is concerned about financial stability risks, he is also worried about soaring house prices.
"After their last rate hike, Wheeler said further easing may be necessary but between his concerns about housing, the recent increase in dairy prices and the increase in payout by Fonterra, there is less pressure on the RBNZ to lower rates," notes Lien.
The sharp decline in Chinese industrial profits is the only legitimate reason for the weakness in not only the New Zealand dollar but other commodity currencies as well and therefore remains the central risk to the NZ dollar.
The British Pound: Declines Ahead?
Support for the pound sterling via expectations for higher interest rates could be on the wane.
However, Lloyds see the first hike in February 2016, well before market expectations for the second half of next year which we read as being pro-GBP in the near-term.
"We still see downside risks for sterling in the medium term, led by concerns about the current account deficit, potential EU
referendum uncertainty and more acute fiscal austerity," say Lloyds.
In contrast, the bank believes the euro is structurally undervalued, although further ECB QE is a downside risk.
Researchers at S.E.B, the Swedish bank, have meanwhile told us that they see sterling as being overvalued.
Analyst Richard Falkenhall has said he sees the GBP taking its final steps higher as the currency has reached stretched levels against several currencies in real trade weighted terms.
"Despite some additional upside potential in GBP in coming months, most measures of sterling's long-term valuation indicate it is now overvalued," says Falkenhall.
However, the analyst does concede that the situation is "somewhat mixed" with different valuation measures providing slightly different outcomes.
Importantly though, "according to the SEB long-term fair value model the GBP is currently around 5% overvalued compared to its long-term fair value in trade weighted terms, which is far from extreme."