NZD/USD: RBNZ determination to result in kiwi outperformance – MUFG

During August the New Zealand dollar gained against the US dollar from 0.6975 to 0.7039. In the view of economists at MUFG Bank, the Reserve bank of New Zealand (RBNZ) rate hike plans are set to encourage a stronger NZD.

Kiwi to advance in light of RBNZ hawkishness 

“The timing of the first reports of an outbreak was just before the RBNZ met and this scuppered the plans to raise rates for the first time. Since then though plans are being rolled out for the country to come out of lockdown as cases look to be plateauing and hence we see this as temporary and we are maintaining our current forecasts for NZD appreciation ahead.” 

“Governor Orr indicated the probability of rate hikes soon even if COVID-19 remains in the community. Assistant Governor Hawesby went further by explaining the decision to hold off hiking was more about the optics of hiking on a day the country went into a lockdown. He also admitted the RBNZ discussed hiking by 50bps. That now would become a plausible scenario if covid was eradicated quickly.”

“More likely is that COVID-19 is contained to a greater degree than elsewhere which allows the RBNZ to begin tightening on 6th October – helping provide NZD with key support ahead.”