NZD/USD: Closed borders dampen reflationary tendencies, capping the kiwi – Credit Suisse

Slow vaccine rollout and ongoing policy resistance to market pressure instead leave the Credit Suisse analyst team neutral on the kiwi despite strong commodity prices.

Markets already expecting the RBNZ to hike well ahead of the RBA

“We are neutral NZD/USD, with a 0.6850-0.7215 target range for Q3 (prev. 0.6925-0.7215).”

“A large upside surprise in Q1 Kiwi GDP shows that New Zealand has rebounded faster than Australia. Nevertheless, border closures continue to be a concern for growth prospects. The travel bubble with Australia has had limited success in normalizing inbound travel.” 

“The country’s vaccine rollout lags all G10 economies, a particularly serious issue for NZ’s tourism dependent economy.”

“Markets expect the RBNZ to hike by Q1 2022, ahead of all other G10 CBs (other than the Norges Bank). This creates a high bar for the RBNZ to deliver a hawkish message at the 18 Aug meeting. The RBNZ’s flexible LSAP program has allowed it to slowly taper asset purchases. The bank, however, flagged tapering as due to a smaller issuance plan, rather than as a reduction of stimulus.”  

“While in principle we favour NZD over AUD, the hawkish priced-in outlook leads us to prefer fading AUD/NZD strength north of 1.08 over outright short AUD/NZD strategies from current levels.”