NZD: Likely to Trade Cautiously Ahead of RBNZ - Westpac
Imre Speizer, Senior Market Strategist at Westpac, suggests that the NZD
is likely to trade cautiously ahead of a big week for central banks,
with the RBNZ’s announcement on Thursday sandwiched between the Fed’s
and the BoJ’s.
Key Quotes
“Last week’s
high of 0.7054 may be the extent of the recent multi-month rally. Last
week’s reversal downwards has flipped near term momentum, and we will be
interested in whether the 0.6900 area caps trading this week.
The
RBNZ OCR Review (Thu) will be the main local risk for NZD markets this
week. We expect an on-hold decision (at 2.25%) but also a clear signal
it will cut in June (it’s a full MPS which provides the opportunity to
clearly communicate the rationale as well as the outlook). That much is
priced in and would elicit little reaction from the markets. However we
see a 30% chance the RBNZ decides not to wait for the next MPS and cuts
next week instead.
As long as the guidance allows for further
easing, the NZD should fall sharply in response. But if the message is
that the easing cycle has probably ended, the NZD could perversely rise.
Data releases next week include the trade balance (Wed), building
permits (Fri), and business confidence (ANZ, Fri).
3 months
We
retain our long-held view that NZD/USD will decline throughout the
year, but we have raised our mid-year target to 0.65. The basis for our
view remains a combination of a lower OCR and better US economic data.
Admittedly, we have been surprised by the degree of skepticism regarding
the Fed’s tightening cycle which has resulted in a sharp decline in the
US dollar. And there is a risk that the Fed will be more hesitant than
we expect. However, we note that early 2015’s skepticism eroded once the
US data pulse improved in Q2.”
