RBNZ: Kiwi does not listen the dovish tune - Rabobank

FXStreet notes that New Zealand’s success in containing the pandemic combined with optimism about a vaccine meant that the RBNZ’s warning about a negative interest and the potential purchase of overseas asset fell on deaf ears. USD/NZD pushed higher, though it is now struggling to hold the day’s best levels just above 0.69. Economists at Rabobank forecast the kiwi at 0.68 on a one-month view.

“As expected the RBNZ announced a Funding for Lending programme overnight stating that it will reduce banks' funding costs and reduce interest rates." 

“New Zealand has been very successful at preventing the spread of the coronavirus but says that the shock to the economy ‘is very large and persistent and inflation and employment targets will remain below the remit targets for a prolonged period’. The markets, however, were not listening to the dovish overtures.”

“RBNZ’s warning about both a negative interest combined with the possibility that it may buy overseas assets both underscore that it may take policy decisions that are particularly biased towards undermining the value of the NZD.”

“Despite the plentiful risks on the economic front, the geopolitical front and potentially from China this week’s vaccine news has brightening the horizon. Consequently, we have toned down our forecast for another surge of USD strength in the months ahead. We are now forecasting NZD/USD at 0.68 on a one-month view and at 0.69 in six months.”