NZDUSD/ AUDUSD: RBNZ GOV WHEELER SPEECH HIGHLIGHTS
Governor of the RBNZ Wheeler offered little bearish pressure on kiwi, refusing to go into any intervention talk and failing to say what the bank will actually use to tame this deflationaire NZD they are experiencing at the moment - with the comments below in mind imo this leaves on direction for Kiwi (short of some FOMC/ USD bullish pressure which seems unlikely as rate expectations continue to be sold-off on the back of a quiet data week) and thats higher - in the speech it became apparent that cutting rates does little to curb kiwi strength given the relative differential remains the highest in G10 in this low interest environment both AUD and NZD rates remain some 50-150bps more attractive for those low risk yield seeking funds.
On a break of 0.733 I see NZD$ moving towards 0.76 - though any USD strength could tame the cross, especailly given 60bps of further cuts have been built into the kiwi projections - though given there is 6wks until the next meeting imo there is certainly time for us to move higher before moving lower into the meeting as dovish expectations build as they did before. From here AUD looks more attractive here given their lack of forward guidance, and already breakout levels 0.78 is now the target - USD strength may continue weak given the presidential election.. is it likely the FOMC will hike just before an election e.g. sept or nov? despite their independence this seems unlikely + imo a Dec hike makes the most sense especially as some feds call for some consistency e.g. 12m as it is easier to measure policy transmission this way.
One potential downside to this view is USD strength, whilst we seem to be in a wave of relentless selling this could be reversed if it is no election related (though there is little else impetus offered) but nonetheless given AUD's breakout i think the 0.78 target is still fair and given NZDs reaction already - it is unlikely we see sellers from here, this reaction almost mimics the RBA's rate cut reaction e.g. 50pips higher - but that was then followed by 200pips higher 1wk later.. we could certainly be in for the same price action here and this is what my bets are on.
RBNZ Gov Wheeler Speech Highlights:
-WHEELER: NOT SURPRISED BY NZD MOVE AFTER TODAY'S DECISION
-WHEELER: RBNZ HAS BUILT 60BPS OF CUTS INTO PROJECTIONS
-WHEELER: NO SERIOUS CONSIDERATIONS OF A 50BPS CUT
-RBNZ GOV WHEELER: WOULD LIKE TO SEE MOST OF RATE CUT PASSED ON BY BANKS
-WHEELER: THERE IS FLEXIBILITY IN POLICY TARGETS AGREEMENT
-WHEELER: WANT NZD TO FALL, WANT TO TAKE PRESSURE OFF NZD WITH LOWER RATES
-WHEELER: DEBT TO INCOME TOOL UNLIKELY TO BE IMPLEMENTED THIS YEAR
-WHEELER: WAGE MODERATION GREATER THAN RBNZ EXPECTED
-WHEELER: RBNZ HAS LIMITED INFLUENCE OVER NZD
-WHEELER: WOULD BE CONCERNED IF THERE WAS A FURTHER DROP IN ST INFLATION EXPECTATIONS
-WHEELER: WILL LOOK AT NZD REACTION OVER COMING DAYS
On a break of 0.733 I see NZD$ moving towards 0.76 - though any USD strength could tame the cross, especailly given 60bps of further cuts have been built into the kiwi projections - though given there is 6wks until the next meeting imo there is certainly time for us to move higher before moving lower into the meeting as dovish expectations build as they did before. From here AUD looks more attractive here given their lack of forward guidance, and already breakout levels 0.78 is now the target - USD strength may continue weak given the presidential election.. is it likely the FOMC will hike just before an election e.g. sept or nov? despite their independence this seems unlikely + imo a Dec hike makes the most sense especially as some feds call for some consistency e.g. 12m as it is easier to measure policy transmission this way.
One potential downside to this view is USD strength, whilst we seem to be in a wave of relentless selling this could be reversed if it is no election related (though there is little else impetus offered) but nonetheless given AUD's breakout i think the 0.78 target is still fair and given NZDs reaction already - it is unlikely we see sellers from here, this reaction almost mimics the RBA's rate cut reaction e.g. 50pips higher - but that was then followed by 200pips higher 1wk later.. we could certainly be in for the same price action here and this is what my bets are on.
RBNZ Gov Wheeler Speech Highlights:
-WHEELER: NOT SURPRISED BY NZD MOVE AFTER TODAY'S DECISION
-WHEELER: RBNZ HAS BUILT 60BPS OF CUTS INTO PROJECTIONS
-WHEELER: NO SERIOUS CONSIDERATIONS OF A 50BPS CUT
-RBNZ GOV WHEELER: WOULD LIKE TO SEE MOST OF RATE CUT PASSED ON BY BANKS
-WHEELER: THERE IS FLEXIBILITY IN POLICY TARGETS AGREEMENT
-WHEELER: WANT NZD TO FALL, WANT TO TAKE PRESSURE OFF NZD WITH LOWER RATES
-WHEELER: DEBT TO INCOME TOOL UNLIKELY TO BE IMPLEMENTED THIS YEAR
-WHEELER: WAGE MODERATION GREATER THAN RBNZ EXPECTED
-WHEELER: RBNZ HAS LIMITED INFLUENCE OVER NZD
-WHEELER: WOULD BE CONCERNED IF THERE WAS A FURTHER DROP IN ST INFLATION EXPECTATIONS
-WHEELER: WILL LOOK AT NZD REACTION OVER COMING DAYS
- 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