NZD/USD: More dovish RBNZ weighs on kiwi – MUFG

The New Zealand dollar has underperformed overnight following the RBNZ’s dovish policy update. The NZD/USD pair hit an intra-day low of 0.6525 where it has found support from its 55-day moving average, economists at MUFG reports. The kiwi is now trading just below the 0.6550 mark.

Key quotes

“Market participants had been expecting a dovish policy outcome, and the RBNZ delivered by announcing an increase to their Large Scale Asset Purchases (LSAP) cap to NZD 100 billion from NZD 60 billion. The duration of the asset purchase programme will also be extended from June 2021 to June 2022. The RBNZ noted that the purchases could be front-loaded in an attempt to further reduce lending rates. The size of weekly asset purchases will increase modestly from next week.”

“The RBNZ discussed alternative policy instruments. The clear signal from the discussions is that the RBNZ favours implementing negative rates combined with a funding for lending programme is further easing is required. The RBNZ still sees the policy rate remaining at 0.25% until the end of March 2021 but the door has opened further to negative rates beyond.” 

“The RBNZ did discuss the option of purchasing foreign assets which would be a form of intervention to weaken the NZD. However, Governor Orr downplayed the likelihood of this happening anytime soon by saying it would be at the bottom of the list of policy options. Overall, the RBNZ’s dovish policy stance will continue to put a dampener on the kiwi. Downward pressure could build on the kiwi as the RBNZ moves closer to implementing negative rates early next year.”