The RBNZ also interestingly referenced the low global rates environment causing NZD strength through carrry/ hot money flows - which once again begs the question if the RBNZ know that their rate is the leading rate in G10 by 50-150bps, why did they only cut 25bps as a 25bps cut still keeps NZD as the headline ccy for carry and will likely continue to attract hot money flows unless investors are scared by aggressive future policy - which is now in the hands of Gov Wheeler to project the aggressiveness (or not) of the RBNZ to combat the rate differential and consequently bring the NZD down where they feel it is acceptable.
Imo given the markets reaction alot is riding on Gov Wheelers speech in 35mins - he needs to be VERY dovish in his forward guidance rhetoric and offer certainties that make kiwi seem less stable than AUD in the future and thus send the hot money flows into AUD and in order to tame kiwi below 0.73, otherwise we will likely see a replication of the AUD case where we moved 100pips+ on the day despite a cut and SOMP and Gov Stevens speech.
From here we wait for the speech. If the speech fails to tame kiwi, i suggest buying kiwi as it is likely to outperform given the lack of easing vs expectations/ what is needed to move NZD lower. Further AUD longs are also advised in this carry seeking macro environment - a Dovish RBNZ makes AUD more attractive but even a neutral RBNZ should help AUD also as it puts less pressure on the RBA to ease since the rate differential between their biggest partner is large enough and still in their favour for kiwi buying for aussie. Nonetheless at these technical levels i like AUD to 0.78 and kiwi to 0.76 if we break 0.734 and Wheeler isnt specific/ aggressive with the forward guidance + the USD weakness is likely to last this week with 0 data coming out so longs make even more sense if only short term
RBNZ Decision Highlights:
RBNZ: Risk of Further Declines in Expectations
RBNZ Says Further Policy Easing Will Be Required
RBNZ: House Price Adding To Financial Stability Concerns
RBNZ: Will Continue To Be Accommodative
New Zealand Dollar Rises After RBNZ Cut To US$0.7315
RBNZ: A Decline In Exchange Rate is Needed
RBNZ: House Price Remains Excessive
RBNZ:Lower Dairy Prices Depressing Farm Sector Incomes
RBNZ:Domestic Growth Supported By Inward Migration, Construction, Tourism
RBNZ: Low Global Rates Placing Upward Pressure On NZ Dollar
RBNZ: Trade Weighted Index Signficantly Higher Than Assumed in June MPS
RBNZ: High NZ Dollar Causing Negative in Tradables Sector
NZ Sees 90-Day Bank Bill at 2.1% in 4Q 2016 vs Prior 2.2%
NZ Sees 90-Day Bank Bill at 1.8 % in 2Q 2017 vs Prior 2.1%
- CB projections show one more cut likely and another possible
- Does Not Give Timeframe For Cut But Says 'We Have A Big Chance To Assess In November'
- Markets Over-Anticipated Central Bank Move
- High Exchange Rate Was A Key Concern
- Main Reason For Cut Is To Manage Inflation Expectations
- If NZD Higher Than Forecast, Risk Of More Rate Cuts Increases