NZD consolidates ahead of RBNZ meeting - Swissquote

Arnaud Masset, market analyst at Swissquote Bank, notes that like most commodity currencies, the NZD has performed relatively poorly over the last few days as it failed to attract investors’ attention in spite of the broad based USD sell-off.

Key quotes

"The last RBNZ meeting drenched investors like a cold shower as Graeme Wheeler baffled investors with his surprisingly changed dovish tone on forward guidance. We can see how the RBNZ’s decision could be viewed as confusing, especially against the backdrop of the improving inflationary outlook. However, we think that the central bank is betting on the Fed having to hike rates to control rising inflation pressures caused by the“Trumponomics” effect."

"Unfortunately for the RBNZ, investors are currently unwinding the so-called reflation trade. In short, equities and the USD fell off a cliff yesterday and the trend is set to continue today. Against this backdrop, we would not be surprised if the Fed slows the pace of tightening and waits to see the actual effects of Trump's upcoming policy changes."

"The RBNZ is holding its March meeting this evening and we do not expect Governor Wheeler to change his stance, neither to lift the OCR. The institution will however have to justify its dovish stance especially against the backdrop of mounting inflationary pressure. We favour long NZD positions, especially against the Australian dollar. NZD/USD has room for appreciation, even though the risk-off sentiment will limit risk appetite."