I posted sh**loads (technical term) of previews yesterday ... which were pretty much showing an expected 'not much' from the Reserve Bank of New Zealand

So, the tilt to a wee bit more hawkish was a surprise:

This now via CBA (bolding mine):

NZD is up across the board after the RBNZ policy meeting for two key reasons.

  • First, the RBNZ is no longer talking-down the currency. Previously, the RBNZ warned that "a lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth". The RBNZ now highlights New Zealand dollar weakness "if sustained, will increase tradables inflation and promote more balanced growth". They dropped the words 'needed°.
  • Second, the RBNZ brought forward the timing of when they expect inflation to reach 2% by nine months largely because of a lower trade-weighted index. The RBNZ now projects headline CPI inflation to reach 2% (the midpoint of the RBNZ's 1-3% target band) by Q2 2018 (previously: Q1 2019). This can lead to an upward revision to New Zealand interest rate expectations in favour of NZD.

As was widely expected, the RBNZ left the Official Cash Rate (OCR) at 1.75% and reiterated that 'monetary policy will remain accommodative for a considerable period'.

  • The RBNZ made no material changes to its GDP growth and policy outlook.
  • The RBNZ's projection still imply an OCR of 2.00% (a 0.25% hike) in March 2020.

Overall, New Zealand's higher terms of trade, the structural improvement in the current account deficit, and positive real interest rates spread between New Zealand and the US favour a higher NZD/USD.

  • We also believe that NZD has been oversold over the last couple of months, and believe NZD/USD will lift above 0.7000 in a relatively short period time, and over coming weeks lift to re-test the 200-day moving average of 0.7140.