NZD/USD to enjoy a fast recovery if COVID-19 is eliminated quickly – MUFG

The Reserve Bank of New Zealand (RBNZ) decided to keep the cash rate on hold at 0.25% in light of new COVID-19 cases and the Government imposing covid restrictions. NZD has recovered slightly against USD following the decision. Economists at MUFG Bank expect the NZD/USD pair to recover if the NZ lockdown is successful. 

COVID scuppers the RBNZ

“RBNZ decided to keep its monetary policy stance unchanged. The decision was in contrast to the consensus of a 25bp hike although that consensus shifted yesterday after New Zealand confirmed its first community COVID-19 case since February.”

“The primary hawkish element of the meeting was the guidance from the RBNZ on the path of the OCR going forward. Back in May the OCR was shown to be at 0.7% by the end of 2022 and 1.5% at the end of 2023. Now the RBNZ has the OCR at 1.6% and 2.0% respectively.”

“If the New Zealand lockdown is as short as scheduled (3-7 days) we would expect a quick recovery in NZD and some more given today’s guidance implies not just a faster pace of rate increases than in the MPS from May but also a faster increase than priced in the market, in particular in 2023.”