If the RBNZ statement pours cold water on the market’s OCR expectations the NZ$/US$ could pull-back

by Kymberly Martin

NZ Dollar

The NZD/USD outperformed along with the AUD/USD over the past 24-hours. It sits at 0.8320 this morning.

There was not too much domestically to drive the currency yesterday. The RBNZ announced that residential construction activity will be exempted from recent LVR restrictions.

The implications for monetary policy are negligible as we head into tomorrow’s Monetary Policy Statement, but it does show the devil may be in the detail of macro-prudential tools.

Heading into tomorrow’s RBNZ meeting the market prices a first OCR hike by March, and almost 125bps of hikes by the end of next year. This is consistent with our own views. However, we do think the market is likely ahead of itself in pricing almost a 40% chance of a 25bps hike by January.

This morning the NZD/USD sits at 0.8330, within a key resistance window. A break higher would open the way for a rise to the next point of resistance at 0.8410. If the RBNZ statement pours cold water on the market’s OCR expectations tomorrow, the NZD/USD could see a knee-jerk pull-back. However, we maintain an end year target of 0.8400.

The NZD was stronger against its European peers overnight. The NZD/GBP has clawed its way back to sit around 0.5060 currently.

There is not too much scheduled on the domestic agenda today. However, the RBNZ’s weekly mortgage approvals data are now watched with interest in the wake of the recent implementation of LVR restrictions.


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The USD has declined against most of its peers over the past 24-hours. The JPY has outperformed along with the NZD and AUD.

Data delivery provided little direction for markets overnight, as releases were not far from expectation. In China, industrial production was shown growing in line with expectations at 9.7% y/y in November. This appears to confirm growth in this sector has bottomed, allaying fears of a harsh downturn in China activity. But the general mood in markets overnight was fairly subdued.

Equities lost ground (Euro Stoxx 50, -0.90%, S&P500 currently -0.20%), as US benchmark yields subsided.

As the USD declined, the JPY managed to gain the upper hand. Crucial resistance for the USD/JPY at the May highs of 103.70 appears to be remaining steadfast. The USD/JPY approached 103.40 on a couple of occasions over the past 24-hours but has returned to trade at 102.80 this morning.

Elsewhere, the AUD also outperformed along with the NZD. Support for the AUD/USD held at 0.9080 overnight. Yesterday’s NAB AU business survey showed business conditions and confidence broadly unchanged.

While still weak, business conditions appear to be trending higher. Against that, the employment index fell considerably, implying further deterioration in unemployment. Our NAB colleagues continue to see the probability of a further RBA cut mid next year. The market prices a 40% chance of this outcome. But for now, the AUD/USD appears to be finding its feet. It has traded off its lows to sit at almost 0.9160 this morning. Today, the AU Westpac Consumer Confidence index will be released.

The slew of UK data releases overnight (industrial and manufacturing production and trade balance), did not provide sufficient positive surprise for the GBP/USD to sustain a break beyond key resistance at 1.6440. The GBP/USD trades at 1.6430 this morning.

It is fairly light on the data front tonight. German CPI data will be released along with US mortgage applications.

All its research is available here.

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