NZD: Current sentiment driversLatest developments:
March 14 – The RBNZ left its OCR unchanged at a record low of 0.25% and asset purchases at NZ$100 billion as expected. Once again, the RBNZ kept further easing on the table and reaffirmed their commitment to easy policy, stating that prolonged stimulus would be needed to get employment and inflation to desired levels.
March 17 – GDP for Q4 printed at -1.0% Q/Q and -0.9% Y/Y. Commenting on the contraction in economic activity, Capital Economics stated “The modest solid decline in activity in Q4 reflects the fading of pent up demand and means that in New Zealand a second recession is imminent as GDP is bound to decline in Q1.”
November 3 – For Q4, the Unemployment Rate in New Zealand printed below consensus at 4.9% from 5.3% in Q3. Additionally, Employment Change printed at 0.6% versus market consensus of 0.0%.
January 21 – Inflation for Q4 saw CPI Y/Y remain unchanged at 1.4% while CPI Q/Q printed at 0.5% from a prior of 0.7%.
Future sentiment shifts:
Due to its high beta status, NZD’s performance over recent months has been strongly correlated with the market’s overall risk tone, with the currency weakening substantially as markets sold off and strengthening as the risk tone recovered and turned positive.
Recent global data has been encouraging, continuing to support NZD and the overall risk tone; although, the ongoing spread of the virus throughout the world and second waves in many countries still pose significant risks.
For a fundamental improvement in NZD’s outlook and bias, there will need to be an easing of concerns surrounding the spread of the coronavirus (which appears likely given the vaccine rollout). However, even then, NZD upside could become an uphill battle with many analysts arguing the currency is approaching overvalued levels.
