NZD/USD: Kiwi supported by less dovish outlook for RBNZ policy – MUFG

Analysts at MUFG Bank, point out the New Zealand dollar is supported by a less dovish outlook for the Reserve Bank of New Zealand’s policy. They forecast NZD/USD will trade in the 0.6400/0.6900 range during the first quarter, 0.6500/0.7000 during the second and third quarter and at 0.6600/0.7100 on the fourth quarter. 

Key Quotes:

“The New Zealand dollar weakened in January, like most currencies versus the US dollar, reflecting the increased risks to global growth emanating from the spread of the coronavirus from China. But the outperformance of NZD versus AUD reflects the expectations that New Zealand is in a better position to weather another global downside risk. We concur with that and certainly the data flow continues to show the benefits of the past monetary easing.”

“RBNZ mortgage lending data released in January revealed a 22% jump in annual mortgage lending growth. Housing sales jumped 12% in December from a year earlier. REINZ house price growth is picking up also, recording a 6.6% y/y gain.”

“In addition to lower rates reviving housing activity, the RBNZ have been content expressing satisfaction with another consequence of monetary easing last year – a weaker NZD. RBNZ Assistant Governor Hawkesby highlighted the fact that a weaker NZD had helped insulate New Zealand from negative global factors. So we suspect the RBNZ will continue to be very cautious on reversing policy, limiting any upside for NZD. The annual inflation rate did pick up from 1.5% in Q3 to 1.9% in Q4. That’s consistent with the RBNZ’s remit of inflation being near the mid-point of the 1.0%-3.0% range.”