Rabobank in New Zealand with a forecast for RBNZ policy and the Kiwi $

Firstly, on yesterday's NZ inflation data:

  • The modest acceleration to 1.5% y/y from 1.4% y/y may on the margin further diminish fears that the RBNZ will resort to a negative interest rate. Though the recent reassurances from the RBNZ that it will look through temporary rises in inflation meant that today's release had little immediate impact on the NZD.
  • We expect the RBNZ to retain a cautious stance on policy for an extended period and see scope for dips back to the 0.71 area on a 3 month view assuming a broad based improvement in the tone of the USD.
  • That said we see NZD/USD at 0.72 on a 6 month view assuming further signs of economic recovery in New Zealand on that horizon.

Analysts add more on the NZ / China relationship:

  • New Zealand could find itself treading a thin line between ensuring strong trade links with China on one hand and following the tone of its ‘Five Eyes’ allies, the US, Australia, the UK and Canada, on the other. As is currently the case in Australia, the fall-out from relations with China could increasingly become a driver for the NZD in the years ahead.
  • ... the relationship with China could be a longer-term driver for the NZD

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For more on the NZ CPOI data:

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