1. Developments surrounding the global risk outlook.
As a high-beta currency, NZD has remained broadly well supported in times of risk-on and as the overall risk outlook and tolerance of the market has improved over recent months. With coronavirus vaccines programs now underway in many countries, we expect the months ahead to see a further gradual improvement in the overall risk outlook and global economic outlook.
2. The Monetary Policy outlook for the RBNZ.
Going into 2021, the monetary policy outlook for the RBNZ were positive after the bank pushed back against the need for negative rates, as well as a string of positive economic data points showed the impact from the pandemic was less severe on the NZ economy than previously anticipated. However, optimism has diminished in recent sessions as new legislation by New Zealand's government to cool its housing market is expected to provide the RBNZ with more time before being forced to normalize policy. Consequently, market expectations for the timing of future rate hikes have been pushed back.
3. The country’s economic and health developments.
With the new macroprudential policies put in place by the NZ government, it will be very important to keep close track of the virus situation in NZ as well as the incoming data. This week’s price action saw some strong NZD buying in line with it’s med-term outlook, however given the macroprudential considerations we have kept the med-term bias at weak bullish until we see this week’s incoming CPI data. If incoming data starts to show marked deterioration, that will further push back tapering and rate normalization expectations for the RBNZ and could tilt the fundamental outlook to neutral from weak bullish.
As a high-beta currency, NZD has remained broadly well supported in times of risk-on and as the overall risk outlook and tolerance of the market has improved over recent months. With coronavirus vaccines programs now underway in many countries, we expect the months ahead to see a further gradual improvement in the overall risk outlook and global economic outlook.
2. The Monetary Policy outlook for the RBNZ.
Going into 2021, the monetary policy outlook for the RBNZ were positive after the bank pushed back against the need for negative rates, as well as a string of positive economic data points showed the impact from the pandemic was less severe on the NZ economy than previously anticipated. However, optimism has diminished in recent sessions as new legislation by New Zealand's government to cool its housing market is expected to provide the RBNZ with more time before being forced to normalize policy. Consequently, market expectations for the timing of future rate hikes have been pushed back.
3. The country’s economic and health developments.
With the new macroprudential policies put in place by the NZ government, it will be very important to keep close track of the virus situation in NZ as well as the incoming data. This week’s price action saw some strong NZD buying in line with it’s med-term outlook, however given the macroprudential considerations we have kept the med-term bias at weak bullish until we see this week’s incoming CPI data. If incoming data starts to show marked deterioration, that will further push back tapering and rate normalization expectations for the RBNZ and could tilt the fundamental outlook to neutral from weak bullish.