NZD/USD to see marginal losses, but outperform other risk-on currencies – HSBC

No rate hike and the national lockdown announcement did not dent the New Zealand dollar mainly due to the more aggressive cash rate projections and the stabilisation in the broader risk sentiment. Economists at HSBC expect the NZD’s losses against the USD to be modest compared to other risk-on currencies where the case for monetary policy normalisation is much less compelling.

Kiwi still standing despite no hike

“The RBNZ projects at least one rate hike this year, with another four likely before the end of 2022. Meanwhile, the ‘peak’ rate is now projected at 2.1%, up from 1.8% in the last set of projections. All this would be something of a green light to NZD outperformance despite staying on hold at this meeting.”

“The NZD remains a higher beta G10 currency – the NZD generally outperforms when risk sentiment is positive and underperforms otherwise. The modest rebound in risk sentiment following yesterday’s (17 August) sell-off is no doubt helping.”

“Provided the health situation in New Zealand does not translate into a much more prolonged lockdown and significantly negative shock to domestic output, we would still expect the NZD to outperform other risk-on currencies (such as the AUD) that are much further from monetary policy normalisation, especially in light of the RBNZ’s new and more hawkish rate projections for the months ahead.

“We do see NZD/USD declining modestly against our new backdrop of a stronger USD.”