The expectations were that the RBNZ would stay on hold. So, when the rate statement was released, it was expected that the market focus would be on forward guidance. The outlook for New Zealand going into the rate meeting last night had been subdued by the fact that the coronavirus outbreak was expected to weigh on GDP figures. Both ANZ and BNZ have cut their growth forecasts for New Zealand’s GDP projections. Remember that New Zealand is more vulnerable to the coronavirus as trade makes up about 60% of New Zealand’s economy compared to around 40% of Australia’s economy. Furthermore, tourism in New Zealand amounts to just fewer than 6% of the economy, while Australia’s tourism is around 3%.

At the meeting the RBNZ kept rates unchanged as expected at 1.00%, noting that policy had time to adjust if needed. The NZD rallied out of the meeting for two reasons:

  1. The coronavirus risk was acknowledged and Governor Or said the RBNZ was working on a model of a 6-week disruption. The RBNZ has taken half of the expected Q1 growth off the table in projections due to the coronavirus outbreak. The message to the market was that this was ‘in hand’.
  2. The RBNZ adjusted the forecasts for the future rate path, now seeing the interest rate at 1.00% in June 2020 and 1.10% in June 2021. This is revising up the previous forecasts of 0.9% through to March 2021.

The NZD was an immediate beneficiary of the RBNZ statement that interest rates now had a future upward path. The positive risk tone with Asian equity markets higher on the session sent the NZDJPY pair through 71.00. As long as this positive risk tone remains, expect NZDJPY buyers on pullbacks today.

If the risk tone alters to risk-off then we will still expect AUDNZD sellers on pullbacks.