NZD/USD: Recent gains to prove short-lived – MUFG

Analysts at MUFG Bank see the Reserve Bank of New Zealand (RBNZ) delivering one more rate cut this year rather than wait until February and expect the NZD to weaken versus the US dollar. 

Key Quotes:

“The RBNZ has been successful in their attempts to weaken the NZD. The 75bps of rate cuts delivered this year have resulted in the NZD losing around 5% of its value against the USD and retesting the lows from the summer of 2015. The NZD has recently staged a modest relief rally driven by optimism over a US-China partial trade deal and the global growth outlook. However, we expect recent gains to prove short-lived.”

“The RBNZ is poised to clip the kiwi’s wings in the week ahead when we believe they will deliver another 25 basis point rate cut. At their last policy meeting, the RBNZ clearly signalled that there remains scope for more monetary stimulus if necessary. It has expressed concern over ongoing low inflation which remains below their 2% target mid-point, and slower growth during the 1H 2019.”

“We expect the NZD to weaken driven by another rate cut from the RBNZ. NZD/USD is currently testing key support from its 55-day moving average at 0.6346. A decisive break below could open up further downside back towards the October lows at just above the 0.6200-level.”