NZD/USD: Aggresive approach to the LSAP to weigh on the kiwi – ANZ

As expected, the Reserve Bank of New Zealand (RBNZ) left the OCR unchanged at 0.25% and the QE program unchanged at a cap of $100 B, per ANZ Bank. The NZD/USD pair bounced-off monthly lows at 0.6599 to near 0.6620 region but has reverted back to the 0.66 level, down -0.44% on the day.

Key quotes

“The RBNZ left the OCR and QE cap unchanged today, as expected, and repeated their forward guidance that the OCR will not change before March.”

“The RBNZ reminded markets that a lower OCR and bank funding for lending programme (FLP) are the preferred options for further stimulus, noting that the FLP would be ready “before the end of this year.” It will almost certainly be introduced before OCR cuts.”

“We continue to expect a 50bp OCR cut in April, with this likely to enter the RBNZ’s published forecasts in the November Monetary Policy Statement.”

“The NZD bounced initially on the reiteration of forward guidance. However, the flatter curve implied by the pace of the LSAP being reduced by less than the pace of issuance is likely to weigh on the NZD in coming days, as will the Bank's reiteration that foreign asset purchase remain under consideration.”