After extending gains on hope that the RBNZ would adopt a more positive on the inflation outlook, the Kiwi fell sharply on Thursday morning and reached its lowest level in more than two years (lowest since March 2016). After climbing as high as $0.6762 yesterday, NZD/USD slid 1.33% this morning to $0.6655 after the Reserve Bank of New Zealand adopted a more dovish stance. As broadly expected the monetary institution maintained the Official Cash Rate at record low 1.75%. However, investors didn’t expect that Adrian Orr would delayed the timing for the next rate hike. The RBNZ is now expected to wait until the third quarter of 2020, which corresponds to a delay of one year compared to the May forecast. In addition, Governor Orr said that the RBNZ leaves the door open for a rate cut, should the situation warrant it.
The RBNZ’s dovish turn wasn’t expected by most market participants, which explains why the Kiwi is having a rough day. Nevertheless, Governor Orr also said that the RBNZ was finally “pleased” with current level of the Kiwi, which suggests that the downside is limited. In the medium-term, we do not rule out further weakness of the Kiwi towards the 0.66-0.65 support area. However, we remain positive in the longer-term as we believe the Kiwi is approaching oversold territory.
By Arnaud Masset
