The NZD is currently trading at 0.7320, up 0.2% on the previous NY close, but similar to levels this time yesterday morning. The range has been fairly narrow ahead of this morning's RBNZ Monetary Policy Statement.
We're fairly confident that the RBNZ's projected rate track is going to remain well below current market pricing and the Bank will remain uncomfortable with the current (strong) level of the NZD. However, we wouldn't see any possible dip in rates or NZD as long-lasting. The market isn't going to change its view that rates will eventually move higher (and well within the next 2-3 years, despite what the RBNZ projects) and currencies are ultimately driven by fundamentals, not how Governor Wheeler thinks the NZD should behave. We think that current swap rates of circa 2.40% for 2-years and 3.01% for 5-years fairly represent the path for NZ short-term rates in the years ahead. And the NZD remains slightly under-valued, if anything, in an environment where risk appetite remains high.
Yesterday, NZ’s new Finance Minister Joyce purposely delayed an announcement on giving the RBNZ powers to introduce debt-to-income restrictions as part of its macro-prudential toolkit. He clearly has no interest in this sort of intrusion on lending in the current election year, telling the RBNZ to provide some comprehensive cost-benefit analysis and a public consultation.
There's not much to say on other currencies. As I look at the screen, NZD crosses against AUD, GBP, EUR, CAD and CNY are all within 0.1% of the previous NY close.
Once the RBNZ Statement and press conference are out of the way this morning, attention will turn to RBA Governor Lowe's speech tonight. There was nothing in this week's policy statement to encourage the view espoused by a number of Australian economists that the RBA will need to ease policy later this year. We doubt the speech will encourage such an outlook and it is likely to be a fairly balanced affair, as was the policy statement. There is little else on the calendar so it should be another quiet session tonight.
The USD continues to retreat, a familiar theme this year. It has fallen against all the majors, although modestly. The yen is about 0.6% stronger, with USD/JPY settling around 111.70 this morning. After almost hitting 84 late last month, NZD/JPY now trades down at 81.80.
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