RBNZ is willing to tolerate higher inflation for a weaker Kiwi - Swissquote

Arnaud Masset, market analyst at Swissquote Bank notes that the Reserve Bank of New Zealand has kept its Official Cash Rate target unchanged at a record low of 1.75. Also, Graeme Wheeler did not change his view on the overvaluation of the Kiwi, instead repeating the need for a weaker Kiwi “to achieve more balanced growth”. He also allayed fears concerning rising inflationary pressure, arguing that the spike was temporary, stemming from a temporary rise in commodity prices.

"Overall, the tone of the statement suggests that the RBNZ is ready to tolerate higher inflation in order to allow for a weaker Kiwi. This may be a good decision especially as core inflation has picked up at a slower pace than headline inflation. However, we are having a hard time believing that the market will collaborate. Indeed, the Kiwi has been one of the worst performing currencies among the commodity complex (+1.8% against the USD), especially against the Australian dollar (+6% versus the USD). We think that the Kiwi has room for further appreciation, especially against the Aussie. AUD/NZK has already fallen 1.6% since mid-March and is now heading towards the next key support area at between 1.08-07(psychological level and Fibo 38.2% on December-March rally)."