FXStreet (Edinburgh) – Greg Gibbs, FX Trading Strategist at RBS, assessed the outlook for the Kiwi dollar in light of the recent RBNZ decision and Governor Wheeler’s speech.
Key Quotes
“RBNZ Governor Wheeler gave a comprehensive view on the RBNZ current thinking on both interest rate policy and exchange rate policy in context of global events and the extensive re-evaluation if the RBNZ’s inflation targeting performance over recent years”.
“So the exchange rate is close to its long run average, but a lower exchange rate is justified, mainly to reflect lower export (dairy) prices. Wheeler went on to outline a bearish outlook for dairy prices, suggesting that if the RBNZ wants the currency lower now, it may want it lower still in months ahead”.
“The market had become quite bearish and short NZD in light of rate cuts and sharply lower milk prices in recent months. As such, RBNZ Governor Wheeler’s comments today have triggered a modest correction higher in the NZD, calming rate cut expectations and pushing up 2yr yields by around 5bp. The market appeared to have an inkling he might cool rate cut expectations as 2yr swap rates rose about 5bp yesterday ahead of the speech, such that in around 24 hours. 2yr swap rates are up about 10bp”.
“The RBNZ is still clearly jawboning the currency lower, and thus we might expect a relatively limited further bounce in the NZD. However, in light of the lift in NZ rates in the last day, the risks around the Fed policy delaying hikes in light of lower commodity prices and weaker activity in many less developed economies, it would make sense to be prepared for a further near term rise in NZD”.
(Market News Provided by FXstreet)