As the RBNZ delivered its widely anticipated 25-bp rate cut to 2.00%, NZD made the “expected” jump, before settling lower following dovish comments from RBNZ governor Wheeler. Asserting its concern with sustainable decline in inflation and greater than expected moderation in wage growth, the RBNZ has explicitly opened the door for further easing in the coming months. As those statement failed to lower the value of the currency, Wheeler decided clear the air by stating “we want to see the currency fall” as the cat-&-mouse with the RBA continues with neither central bank want to see its currency rise appreciably.
Both central banks have frustratingly seen their currency rise appreciably due to: i) stabilisation in commodities and China market metrics; and 2) Fed keeping rates unchanged. A rate cut of at least 25-bps this year from of the two each central bank is a foregone conclusion in the event of no Fed hike this year, while the macro dynamics as well as market sentiment in China will be instrumental in gauging the moves from the RBA. Another reason the RBNZ has little choice but to cut some more is the planned macro-prudential measures set for September by the RBNZ, aimed at slowing speculative interest in the hot housing market. Such move would remove a crucial obstacle to interest rate cuts and will keep the RBA-RBNZ battle for the lowers well alive.
Ahead of this evening's RBNZ move, we issued a tactical NZD trade in addition to the AUDNZD existing long.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
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