NZDUSD/ AUDUSD: MONETARY POLICY DECISION HIGHLIGHTS
Updated
Relatively poor delivery from the RBNZ, by the looks of the whipsaw the market wanted/ expected 50bps based on the AUD differential and the RBA rate cut last week 50bps or some alt policy (e.g. QE) seemed like the smart move to make. From here Kiwi and Aussie longs look preferential as the macro environment shifts to a yield seeking stance from monpol trading - 0.782 for AUD and 0.76 for NZD seem the next bull levels. RBNZ unlike RBA offered some promsing forward guidance though e.g. "further policy easing willl be required" and "A decline in the exchange rate is needed" and "high NZD is causing negative inflation in tradables sector" and "Low global rates are placing upward pressure on the kiwi dollar" - all of which comments point to the RBNZ issuing more dovish easing but it does also ponder the question that given they knew this before making the decision why they didnt execute some of the "further policy easing" and "monpol will continue to be accommodative" which will be required in the future now, to have a greater effect vs just a 25bps cut which the market had already digested weeks ago.
The RBNZ also interestingly referenced the low global rates environment causing NZD strength through carrry/ hot money flows - which once again begs the question if the RBNZ know that their rate is the leading rate in G10 by 50-150bps, why did they only cut 25bps as a 25bps cut still keeps NZD as the headline ccy for carry and will likely continue to attract hot money flows unless investors are scared by aggressive future policy - which is now in the hands of Gov Wheeler to project the aggressiveness (or not) of the RBNZ to combat the rate differential and consequently bring the NZD down where they feel it is acceptable.
Imo given the markets reaction alot is riding on Gov Wheelers speech in 35mins - he needs to be VERY dovish in his forward guidance rhetoric and offer certainties that make kiwi seem less stable than AUD in the future and thus send the hot money flows into AUD and in order to tame kiwi below 0.73, otherwise we will likely see a replication of the AUD case where we moved 100pips+ on the day despite a cut and SOMP and Gov Stevens speech.
From here we wait for the speech. If the speech fails to tame kiwi, i suggest buying kiwi as it is likely to outperform given the lack of easing vs expectations/ what is needed to move NZD lower. Further AUD longs are also advised in this carry seeking macro environment - a Dovish RBNZ makes AUD more attractive but even a neutral RBNZ should help AUD also as it puts less pressure on the RBA to ease since the rate differential between their biggest partner is large enough and still in their favour for kiwi buying for aussie. Nonetheless at these technical levels i like AUD to 0.78 and kiwi to 0.76 if we break 0.734 and Wheeler isnt specific/ aggressive with the forward guidance + the USD weakness is likely to last this week with 0 data coming out so longs make even more sense if only short term
RBNZ Monetary Policy Decision Highlights:
RBNZ: Risk of Further Declines in Inflation Expectations
RBNZ Says Further Policy Easing Will Be Required
RBNZ: House Price Inflation Adding To Financial Stability Concerns
RBNZ: Monetary Policy Will Continue To Be Accommodative
New Zealand Dollar Rises After RBNZ Cut To US$0.7315
RBNZ: A Decline In Exchange Rate is Needed
RBNZ: House Price Inflation Remains Excessive
RBNZ:Lower Dairy Prices Depressing Farm Sector Incomes
RBNZ:Domestic Growth Supported By Inward Migration, Construction, Tourism
RBNZ: Low Global Rates Placing Upward Pressure On NZ Dollar
RBNZ: Trade Weighted Index Signficantly Higher Than Assumed in June MPS
RBNZ: High NZ Dollar Causing Negative Inflation in Tradables Sector
NZ Central Bank Sees 90-Day Bank Bill at 2.1% in 4Q 2016 vs Prior 2.2%
NZ Central Bank Sees 90-Day Bank Bill at 1.8 % in 2Q 2017 vs Prior 2.1%
The RBNZ also interestingly referenced the low global rates environment causing NZD strength through carrry/ hot money flows - which once again begs the question if the RBNZ know that their rate is the leading rate in G10 by 50-150bps, why did they only cut 25bps as a 25bps cut still keeps NZD as the headline ccy for carry and will likely continue to attract hot money flows unless investors are scared by aggressive future policy - which is now in the hands of Gov Wheeler to project the aggressiveness (or not) of the RBNZ to combat the rate differential and consequently bring the NZD down where they feel it is acceptable.
Imo given the markets reaction alot is riding on Gov Wheelers speech in 35mins - he needs to be VERY dovish in his forward guidance rhetoric and offer certainties that make kiwi seem less stable than AUD in the future and thus send the hot money flows into AUD and in order to tame kiwi below 0.73, otherwise we will likely see a replication of the AUD case where we moved 100pips+ on the day despite a cut and SOMP and Gov Stevens speech.
From here we wait for the speech. If the speech fails to tame kiwi, i suggest buying kiwi as it is likely to outperform given the lack of easing vs expectations/ what is needed to move NZD lower. Further AUD longs are also advised in this carry seeking macro environment - a Dovish RBNZ makes AUD more attractive but even a neutral RBNZ should help AUD also as it puts less pressure on the RBA to ease since the rate differential between their biggest partner is large enough and still in their favour for kiwi buying for aussie. Nonetheless at these technical levels i like AUD to 0.78 and kiwi to 0.76 if we break 0.734 and Wheeler isnt specific/ aggressive with the forward guidance + the USD weakness is likely to last this week with 0 data coming out so longs make even more sense if only short term
RBNZ Monetary Policy Decision Highlights:
RBNZ: Risk of Further Declines in Inflation Expectations
RBNZ Says Further Policy Easing Will Be Required
RBNZ: House Price Inflation Adding To Financial Stability Concerns
RBNZ: Monetary Policy Will Continue To Be Accommodative
New Zealand Dollar Rises After RBNZ Cut To US$0.7315
RBNZ: A Decline In Exchange Rate is Needed
RBNZ: House Price Inflation Remains Excessive
RBNZ:Lower Dairy Prices Depressing Farm Sector Incomes
RBNZ:Domestic Growth Supported By Inward Migration, Construction, Tourism
RBNZ: Low Global Rates Placing Upward Pressure On NZ Dollar
RBNZ: Trade Weighted Index Signficantly Higher Than Assumed in June MPS
RBNZ: High NZ Dollar Causing Negative Inflation in Tradables Sector
NZ Central Bank Sees 90-Day Bank Bill at 2.1% in 4Q 2016 vs Prior 2.2%
NZ Central Bank Sees 90-Day Bank Bill at 1.8 % in 2Q 2017 vs Prior 2.1%
Note
RBNZ Gov Wheeler Live Stream - rbnz.govt.nz/research-and-publications/webcastsNote
UPDATE: RBNZ ASSISTANT GOV MCDERMOTT SPEECH HIGHLIGHTS - - CB projections show one more cut likely and another possible
- Does Not Give Timeframe For Cut But Says 'We Have A Big Chance To Assess In November'
- Markets Over-Anticipated Central Bank Move
- High Exchange Rate Was A Key Concern
- Main Reason For Cut Is To Manage Inflation Expectations
- If NZD Higher Than Forecast, Risk Of More Rate Cuts Increases
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