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NZD Surges Higher on RBNZ

Published February 14, 2019

The New Zealand dollar was the stand-out performer overnight and opens today 1% higher against all major currencies. The Kiwi surged on the RBNZ monetary policy statement released yesterday afternoon where sentiment shifted to a neutral stance from the expected dovish tones. Markets had been expecting the RBNZ to downgrade its growth forecasts in line with other major central banks, however Orr was more upbeat about the NZ economy.

Highlights from the RBNZ announcement

  • The OCR is unchanged at 1.75%
  • The direction of the next OCR move could be up or down
  • The OCR is expected to stay at these levels through 2019 and 2020 (markets had started to price in a 2019 cut)
  • Employment is near the maximum sustainable level
  • Continued supportive monetary policy is necessitated by CPI being below the 2% midpoint target
  • Risk of a sharper downturn in trading partner activity has heightened

US Inflation heads higher

US core inflation rose at a 2.2% annual pace in January vs expectations of 2.1%, the USD rose modestly as higher-than-expected US inflation was seen as giving the Federal Reserve scope to raise interest rates. The NZD holds just shy of 68 US cents, paring back on some of yesterday’s gains.

Risk Appetite Improves on Trade Deal Hopes

Optimism returned to markets following President Trump stating talks going “very well” and he could see letting the March 1 deadline for reaching a trade agreement with China “slide for a little while,” if the two sides were close to agreement. US-China trade talks to conclude this Friday and President Trump will meet with China’s President Xi Jinping to close the deal at some point. Trump is also inching closer towards backing a deal in Congress on funding for a barrier on the Mexican border to avert a partial government shutdown by the weekend.