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.
“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).
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.”