Hawkish RBNZ worked – Once month end is over, the USD could fall

Kiwi

The RBNZ was hawkish relative to market pricing as they signal an end to the easing cycle. With inflation higher, confidence rebounding, and a ton of easing yet to flow through to the economy, the view from the Committee was that they’ve done enough for now. The vote was 5-1 with one vote to stay on hold. There is plenty of slack in the economy, so this is not a situation where rate hikes will be on the table in the foreseeable future.

“Future moves in the overnight cash rate will depend on how the outlook for medium-term inflation and the economy evolves,” was the closing line. This is contrast to the October meeting where they said:

“The Committee remains open to further reductions in the OCR as required for inflation to settle sustainably near the 2 percent medium term target mid-point.”

So, the easing bias is gone, and there’s now no RNBZ meeting until February. Anything could happen in 2026 as there is almost nothing priced (tiny hike probability now priced for September/October 2026).

Nick pointed out to me that there is a meaningful tailwind coming for the first half of 2026 as Fonterra sold their consumer business to a French concern (Lactalis) and this will trigger a substantial payout to New Zealand farmers at some point in late H1 2026. The amount should be in the neighborhood of 1% of GDP, so depending on farmers’ marginal propensity to spend (vs. pay down debt) and any multiplier, you could expect a modest uptick to GDP at some point. It’s not a game changer, but it’s not nothing. Here’s a good write-up on the deal. It’s also a NZD-positive M&A at some point, presumably.

The NZDJPY trade is looking good so far, though I continue my recent pattern of missing my TPs by a few pips. 88.89 was the high and the take profit is 88.94. Given the trade has mostly run its course, I will exit at 11 a.m. if the TP isn’t done. No point HODLing through Thanksgiving as the main idea behind the trade was to capture a hawkish RBNZ result. NZDJPY has mostly traded a 85.50/89.00 range for the past six months, so we are at the top of the range.

GBP

When an event comes out and nobody knows what it means after about three minutes, my tendency is to believe it probably doesn’t mean anything. That’s what’s happening with the UK budget here right now as so much was leaked and we have been prepping for this thing for months. Anticlimax.

Other currencies

As mentioned yesterday, I believe we are nearing an inflection point for the USD as positioning has become lazy long USD, with CTAs and macro discretionary slowly adding to NZD, CAD, and GBP downside over the past few months. Meanwhile, China is fixing USDCNY lower, the Fed looks set to cut in December after a weird wobble that kind of makes no sense to me if you count the votes, and the FOMC is about to have a new captain. The market will soon be thinking about the big trades for 2026, and I strongly doubt that “long USD” will be one of them. The announcement of Hassett as Fed Chair would be a near-term USD-negative catalyst, and once we get past Friday, all the corporate and real money USD demand is done.

I think it’s interesting that USD demand so far has been well absorbed. My preferred USD shorts for a two-to-four-week trade are USDCAD, NZDUSD, and USDSEK. I would not be short USDJPY because of the Takaichi policy mix, and I would not be long GBPUSD because you never know what kind of delayed reaction the market might have to the budget as the fear of a mass exodus from UK property builds on the back of the mansion tax.

If USDCAD starts to roll over, it could easily trend to 1.3800 into year end, just because. I’m still praying for a pop to sell at 1.4138 but I don’t expect this particular prayer will be answered.

Stocks

Feels to me that the Google bull story is mega consensus now and the fun thing is that everyone loves Google now at 10X sales but hated it at 5X sales six months ago. Markets are funny like that.

Finally: we are accustomed to stocks and crypto being tied at the hip. Proclaiming that “QQQ and BTC have decoupled!” has mostly been wrong in the past, but I have to say that it feels like there is no bid for crypto these days, even as stocks, gold, and silver all look ready for blast off towards new all-time highs. I would not be shocked if we close 2025 with SPX at 6950 and BTC at 83k.