The Reserve Bank of New Zealand (RBNZ) cut rates by 50bp to 3.75%, in line with our call and the broader market consensus. The New Zealand Dollae (NZD) is trading on the strong side as the Bank did not revise its terminal rate projections lower (still at 3.10%), despite retaining an optimistic view that inflation will remain within the target band and flagging growing downside risks to the economy, ING’s FX analysts Francesco Pesole notes.
"The indications are that this was the last 50bp reduction, and NZD is benefitting from seeing the end of the easing cycle sooner than previously thought. Early aggressive easing by the RBNZ suggests New Zealand can be better prepared to face trade headwinds than Australia, and we still expect a gradual depreciation in AUD/NZD in the medium run."
"For now, we don’t think the impact on NZD/USD from a slightly less dovish than expected RBNZ will be long-lasting. As we expect a return of US trade policy as a central market theme in the coming weeks, we think the Kiwi dollar remains vulnerable. And the RBNZ’s increased concerns about the growth outlook may allow some dovish repricing in the NZD curve despite the unchanged rate projections."
"We expect a return to 0.56 by the end of this quarter in NZD/USD, and a move to 0.55 in the second quarter as US protectionism risk intensifies."
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