RBNZ: Kiwi does not listen the dovish tune – Rabobank

New Zealand’s success in containing the pandemic combined with optimism about a vaccine meant that the RBNZ’s warning about a negative interest and the potential purchase of overseas asset fell on deaf ears. USD/NZD pushed higher, though it is now struggling to hold the day’s best levels just above 0.69. Economists at Rabobank forecast the kiwi at 0.68 on a one-month view.

Key quotes

“As expected the RBNZ announced a Funding for Lending programme overnight stating that it will reduce banks' funding costs and reduce interest rates. The Large Scale Asset Purchase Programme will continue up to NZD100 B with the Cash Rate on hold at 0.25%. The Bank also warned that progress has been made on its ability to deploy a negative Cash Rate, though the vaccine news has injected a dose of scepticism as to whether the central bank will now have to tread this path.” 

“New Zealand has been very successful at preventing the spread of the coronavirus but says that the shock to the economy ‘is very large and persistent and inflation and employment targets will remain below the remit targets for a prolonged period’. The markets, however, were not listening to the dovish overtures.”

“RBNZ’s warning about both a negative interest combined with the possibility that it may buy overseas assets both underscore that it may take policy decisions that are particularly biased towards undermining the value of the NZD.”