RBNZ update on 21st July weighing on NZD - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that their G10 valuation model table, incorporating different valuation metrics combined to give them one overall valuation level still has most currencies in the undervalued territory versus the US dollar – but the one still in overvalued territory is the New Zealand dollar.

Key Quotes

“The RBNZ yesterday informed the markets that it would release an update of its economic assessment next Thursday and while the release will not include a policy decision (next RBNZ meeting is on 11th August), market participants are speculating that the message from the RBNZ might be that inflation will be lower than expected due to the surge of the New Zealand dollar. NZD/USD is nearly 7% higher since the last meeting on 8th June.

The unusual length of time to the next meeting was the justification for the update next week.

The probability of a cut on 11th August has certainly jumped with the 3-month T-Bill up 8bps since yesterday and the 2-year swap rate down about 6bps. A 25bp cut to the cash rate on 11th August certainly looks more likely now and we would expect some further unwind of that 7% gain we’ve had since early June over the coming days.”