NZD/USD to head back into a 0.70-0.75 range – MUFG

The well-telegraphed decision of the Reserve Bank of New Zealand (RBNZ), which left its interest rate unchanged while introduced a Funding for Lending Programme (FLP), has been met with a 1% gain for NZD/USD. Economists at MUFG Bank expect the kiwi to continue to appreciate. 

Key quotes

“Given the current backdrop of a vaccine potentially resolving the COVID-19 pandemic in 2021, investors are more likely to take an optimistic assessment of action. The RBNZ, as expected, launched a Funding for Lending Program totalling NZD28 B with these loans offered at the prevailing OCR. The RBNZ’s outlook though for 2021 improved with real GDP now projected at -4.0% compared to -5.8% expected in August. The unemployment rate peak is now expected to be 6.4% and not 8.1%, estimated in August.” 

“New Zealand’s 2-year government bond yield has surged 10bps as negative rate expectations have been reduced. NZD/USD looks to be heading back into a 0.7000-0.7500 range. We doubt this will fuel too much concern within the RBNZ given the brightening prospects for 2021 and given NZD on a TWI basis has been trending lower for 6 years now and is some 12.5% below the peak in 2014. As long as the NZD advance is not rapid, there is upside scope from here.”