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NZD Loses More Ground As Risk Off Mood Returns | OCR Decision Wednesday

Published September 23, 2019

The Kiwi Dollar has lost more ground over the weekend and trades near a 10 year low vs the U.S Dollar. This represents a fall of nearly 5% since the RBNZ surprised markets with the 50bps interest rate cut on August 7th. This week the RBNZ are in action again with their latest OCR decision to be announced on Wednesday. It is not only weakness vs the USD, with the NZD also trading at near 1 year lows vs the AUD and GBP, and is at a 4 year low on a trade weighted index basis.

Driving the Kiwi lower over the weekend was renewed risk-off sentiment in global markets amid concerns over the US-China trade stand off. A deal between the two nations all of a sudden looks as far away as ever with news that a Chinese delegation of trade officials cancelled a planned visit to farms in Montana and Nebraska. The visits had been planned as a gesture of goodwill, and the cancelling of the plans has bought trade wars back to the forefront of market focus.


The main event locally is without doubt the RBNZ OCR decision on Wednesday. Prior to this, direction for the NZD will come from overseas events, with trade wars now once again the main focus in driving market sentiment.

RBNZ Likely to Hold

Markets have priced in no change to the OCR this week, with the RBNZ expected to keep the rate steady at 1%, after last month’s surprise 0.50% cut. The bigger question is how and when the RBNZ will follow up on this cut, with analysts keeping a close eye on the wording of the accompanying statement looking for clues on when a resumption of the easing cycle is likely. Last week’s GDP figures were in line with RBNZ projections, and it is likely they will take a “wait and see” stance on future actions. If economic data worsens and the global economic slowdown continues then it is likely the RBNZ will cut again in November. While no cut is expected this week, last month’s surprise 50 point cut suggests nothing is out of the question. A surprise cut on Wednesday will see a sharp sell off in the NZD, while a hold on rates with a hint of further cuts would also be NZD negative.

Trade War Uncertainty To Weigh on Markets

Just as the US-China trade war seemed to be progressing, news over the weekend has seen the likelihood of an agreement worsen with news of the Chinese Trade delegation cutting short their planned visit to US farms. This followed comments from President Trump that he wasn’t interested in a partial trade deal. This has surprised markets as it was only a couple of weeks ago that officials had discussed offering an interim trade deal that would roll back some US tariffs on Chinese goods. The renewed uncertainty has caught markets by surprise and seen risk appetite take a dive to start the week.

U.S Data to Provide Clues on Next Fed Move

Markets are still trying to interpret last weeks “hawkish cut” from the US Fed, where the 0.25% cut was followed by Fed Chairman Powell’s comments which reiterated the central bank’s data dependant approach to policy. The comments have partially cooled the odds of further cuts, however markets are becoming frustrated that the Fed are not providing clear future guidance on their interest rate path. Data this week will therefore be closely watched, including PMI data tonight, Trade Balance and Q2 GDP on Thursday night, and Durable Goods orders on Friday night.

Dovish ECB

The Euro has faced selling pressure over the past few days since the ECB announced a resumption of their quantitative easing program. The EUR has fallen to its lowest close in two years against a basket of major currencies. The week ahead sees a couple of speeches from ECB President Draghi who is likely to reinforce the dovish policy outlook. There are various data releases across the Euro Bloc this week which will be closely watched for signs of economic life.


The British Pound remain near multi week highs as markets continue to price out a no-deal Brexit on October 31st. While the currency may well continue to find support on this, any negative Brexit news will send the Pound tumbling again. This week all eyes will be on the UK Supreme Court and whether they rule that Boris Johnson’s closing of parliament was illegal. If they rule that the move was illegal, parliament would need to be re-opened immediately and could send the Pound towards another heavy sell off. However, if the court rules in Johnson’s favour, it would leave very little time for the remain opposition to stop the UK leaving the EU without a deal.