FXStreet (Barcelona) – The Team at BNZ Research, sees easing potential by the RBNZ ahead in September, but also cautions against a possible upside move towards 0.70 in NZD/USD if the short positions in the pair unwind.
Key Quotes
“The RBNZ surprised many, including us, by cutting its policy rate at the June meeting, by 25bps to 3.25%. It cited concerns about the large blow to national income, which is expected as a result of the plunge in dairy prices. It also emphasised that policy easing was necessary to return headline inflation back to the 2.0% midpoint target. Now the Bank has chosen to start an easing cycle, we do not believe June’s cut will be a ‘one off’. As we decided at the time of the June MPS, we expect a follow up cut at the next meeting in July and see around a 50% chance of a further cut in September.”
“Ahead of the RBNZ meeting, there was clear speculative interest to be short NZD, in anticipation of rate cuts. This was evident in the soggy price action, anecdotal evidence, as well as publicly available measures of market positioning. The CFTC data showed that the ‘net’ position of speculative investors was at the shortest on record before the RBNZ meeting. Since then, that ‘net short’ position has grown even further. We do not expect these investors to be dissuaded from holding NZD short positions while momentum remains firmly to the downside. But we might expect that an unwind of these positions exacerbates any material rally in NZD toward 0.70.”
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