The New Zealand dollar leapt on Wednesday in response to the latest remarks from the RBNZ, which said that interest rates in New Zealand would not be lowered this year or next, wrong-footing investors who had adjusted FX positions to account for lower rates.
“Talk about the market misreading the Reserve Bank,” Martin Rudings, an FX dealer at OMF, told Scoop on Wednesday after New Zealand’s central bank said it expected to “keep the OCR at this level through 2019 and 2020.”
In recent months, traders have increased bets on an interest rate cut by the RBNZ amid mounting evidence of a deteriorating domestic and global economy, and as Australia—New Zealand’s second largest trading partner—wrestles with destabilizing double-digit declines in house prices.
Immediately following the RBNZ’s statement, traders rushed into New Zealand dollars causing price spikes that made a mockery of last week’s remarks from Bank of America Merrill Lynch, who described the kiwi as “the most vulnerable G10 currency.”
At the end of Wednesday’s European session, the New Zealand dollar was worth a cent more against the US dollar than its pre-RBNZ level, at US$0.683.
As with the US dollar, so with the euro: the kiwi gained a euro cent on Wednesday, rising to within striking distance of a 9-week high, at €0.604.
Against the Australian dollar, the kiwi is on course to end the day buying A$0.962—what will be the highest closing exchange rate since January 3rd.
Radobank isn’t convinced, however. In a note to clients, the bank’s senior FX analyst, Jane Foley, predicted in the aftermath of the RBNZ a weaker New Zealand dollar.
“Our view that the US-China trade war will drag on in some form for a prolonged period, coupled with signs of a broader slowdown in global growth, in addition to a recent spate of softer-than-expected domestic data, tilts risks to the downside. We continue to favour selling [NZD] rallies and look for a move towards US$0.66 on a 3-month view,” Foley wrote.