BofA Shifts USD Outlook, Sees Opportunities in NZD/USD

Bank of America has adjusted its currency outlook, adding U.S. dollar short positions as risks shift despite uncertainty. The bank believes that the distribution of risks depends on both U.S. Treasury and Federal Reserve policy credibility.

The firm's USD outlook is tied to the Treasury's efforts to contain borrowing costs through foreign exchange intervention and long-end buybacks. It does not expect the Treasury to abandon these measures, including foreign exchange intervention and long-end buybacks.

Accommodative financial conditions suggest that shorting the U.S. dollar versus high beta foreign exchange is likely in the near term, particularly if the Fed absorbs higher bill issuance. Bank of America recommends buying NZD/USD with an entry at 59.57, a target of 0.62, and a stop at 0.58.

The firm is also bullish on the New Zealand dollar into the fourth quarter due to a hawkish Reserve Bank of New Zealand, expecting two rate hikes from the RBNZ. Weather-driven risks to global food supply chains support the New Zealand dollar outlook, according to the bank.