There were no major changes in the latest RBNZ meeting and Governor Orr did his part to try and talk down the NZD. The key issue for New Zealand is if their economy accelerates sharply that will benefit the NZD. Too much NZD strength hurts New Zealand exporters, so the RBNZ have an interest in trying to discourage NZD strength. However, the reality is that the market looked through the dovishness from the meeting as expected. See the preview which recognised that.
The main points from the meeting
- Interest rates are kept unchanged at 0.25%.
- Annual CPI now seen at 1.5% and TWI at 74.9% vs 71.5% expected.
- No additional stimulus required, but the current monetary policy assumed to be staying at the same level for a ‘prolonged period’.
- Large Scale Asset Purchases (LSAP) were kept the same at $100 billion.
The RBNZ statement recognised the uptick in activity both globally and within New Zealand. However, the statement acknowledged the problem with the strength of the NZD. This was always going to be the RBNZ’s challenge with this meeting. How do you recognise a strengthening economy without rapidly strengthening the NZD. Well, it is done by stressing the uncertainties that are ahead. So, it is unsurprising that the RBNZ said that the economic outlook was still considered uncertain by the RBNZ.
The path for the NZD
The reaction out of the meeting was an NZD dip that was very quickly bought. This was almost certainly due to the reference to negative rates as a potential tool. Although true in theory the RBNZ are unlikely to use negative rates now. So, the NZD remains a buy on dips and the NZDJPY outlook remains the same.