NZD/USD: RBNZ to provide further support to the kiwi on taper talk – MUFG

When the Reserve Bank of New Zealand (RBNZ) shifts its policy stance it is usually done with full clarity and in a clear succinct way and that was certainly the case today. The RBNZ surprised markets by halting its purchase scheme next week. Subsequently, NZD/USD shot higher and recaptured the 0.70 level. The kiwi is set to remain supported, according to economists at MUFG Bank.

RBNZ shifts its stance

“The RBNZ announced that it would end QE by 23rd July while removing the previous reference to needing ‘considerable time and patience’ in order to achieve its monetary policy objectives. In May, the RBNZ had indicated that the first rate hike could come in H2 2022. That suggests scope now for a rate hike to come certainly this year.”

“We certainly should not under-estimate the extent of the shift here today. From needing to maintain stimulus to meet its objectives, the RBNZ today stated that ‘the level of monetary stimulus could be reduced to minimise the risk of not meeting its mandate’. That’s quite a shift in risks.”

“The scale of the shift today certainly provides scope for the RBNZ to move before November. 18th August and 6th October are now both live meetings and the dramatic scale of shift leads us to believe that there is a greater probability of a move in August or October that will provide further NZD support.” 

“Market participants who may be reluctant to sell the US dollar may well see benefits in selling AUD/NZD given the current RBA guidance is for no rate hike until 2024. We doubt that guidance will survive too much longer but nonetheless, the RBA/RBNZ policy divergence is now even more stark. The only note of caution is that long positioning in NZD is already considerable.”