RBNZ Governor Wheeler sends mixed signals for the kiwi – MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the New Zealand dollar has been the top performing G10 currency in the Asian trading session supported by more stable financial market conditions and less dovish comments from RBNZ Governor Wheeler.

Key Quotes

“He reiterated that the RBNZ’s monetary easing cycle has likely finished with their key rate likely to remain at 1.75% for the foreseeable future. The RBNZ expects current policy settings to help generate sufficient growth to have inflation settle near the middle of their target range.”

“More interestingly, Governor Wheeler also suggested that low global inflation and zero or negative policy rates in several major economies has put downward pressure on interest rates in New Zealand and upward pressure on the kiwi. A trend which he thinks might finally be “turning”. The comments have provided support initially for the kiwi as a change in the trend would encourage interest rates in New Zealand to rise more quickly than expected offering support for the kiwi.”

“However, as Governor Wheeler suggested as well that the kiwi could ultimately be undermined by higher yields overseas dampening its relative appeal. The kiwi is already very strong and has benefitted from low yields overseas, so we would agree with Governor Wheeler that a trend reversal is more likely to result in a weaker kiwi beyond the near-term.”