Pine wood is exported from Wellington, New Zealand. Photo by James Anderson, World Resources Institute.

• GBP / NZD spot rate at time of writing: 1.9257
• Bank transfer rate (indicative guide): 1.8482-1.8616
• FX specialist provider (indicative guide): 1.8865-1.8980
• More information on specialist FX rates here

The New Zealand dollar remains the week’s best-performing major on Thursday and is expected to be bought Westpac after Reserve Bank of New Zealand (RBNZ) hints at a pending shift in the interest rate guide, potentially removing what has been a major hurdle for the Kiwi of late.

RBNZ policymakers have been warning for months about an impending shift to negative interest rate policy, while also threatening to put a big sale on the Kiwi Dollar in the market to dominate the exchange rate by buying foreign assets, although the November policy update brought about a change in tactics.

“Global sentiment has been positive lately, capping the US dollar. But the NZD has also outperformed all major currencies. NZ economic performance during the Covid recovery is one explanation, with other easing expectations for OCR cuts,” said Imre Speizer, chief strategy officer. NZ at Westpac. “The MPS RBNZ yesterday provided more easing through the FLP scheme.”

The New Zealand government has contained the coronavirus faster than others and prior to the pandemic had one of the lowest debt-to-GDP ratios in the developed world, leaving the RBNZ’s policy stance looking incompatible with other central banks as well. -than the reality expected on the ground in New Zealand.

The discrepancy was recognized on Wednesday when the RBNZ raised its forecast for the exchange rate by about 130 basis points for September 2021, suggesting that interest rates are no longer likely to fall as far below zero as was once envisioned, which had been supports the ongoing rally in the Kiwi exchange rate.

Above: NZD / USD rates are displayed at hourly intervals next to S&P 500 index futures (black line, left axis).

Governor Adrian Orr said Wednesday that international and domestic demand proved tougher than expected, before picking the domestic job market and household spending power recently to praise. The bank still expects “very large and persistent” shocks to keep employment and inflation below target levels for years, but less than the August policy update, suggesting lower support may now be needed.

“Members discussed inflation and employment prospects. Staff presented a basic scenario, conditioned on a number of assumptions, including that there is no longer a substantial outbreak of the COVID-19 community in New Zealand, and that international borders will be fully opened by 2022. In this scenario, markets The workforce is projected to weaken further in the near term. It is projected to recover over the next years, particularly once borders are assumed to be fully reopened, “said RBNZ. “Inflation is projected to fluctuate around the bottom of the Committee’s target range of 1 to 3 percent.”

This, the progress towards a coronavirus vaccine and a possible change of leadership at the White House in January, all reduce the barriers facing the New Zealand Dollar, and potentially allow it to continue to outperform over the coming months. The US election result is a prospective advantage for the Chinese economy, which is New Zealand’s biggest trading partner, while a successful launch of a coronavirus vaccine will be a game-changer for the global economy and could also be key to reopening New Zealand’s borders early.

As a result expectations for the Kiwi Dollar weakness have eased and the RBNZ’s anxiety over future strength is deemed unlikely, while both have played a role in Westpac’s advocacy that bank clients are betting on an almost 5% increase in weighted trading. New Zealand Dollar over the coming months.

“Today we have more positive economic news – another very strong housing market update, which will keep the story of New Zealand’s economic performance alive for a while,” said Speizer.

Above: Currency weighting for the New Zealand Dollar exchange rate by trade. Source: RBNZ.

The Westpac notion implies a rise in the Kiwi against the Aussie, US Dollar, Japanese Yen, Pound Sterling and Euro, which collectively account for around 55% of the trade weighted index. Other exchange rates that are likely to rise include NZD / KRW and NZD / CNH, which are worth around 25% of the index.

“The RBNZ is slowly marking their exaggerated pessimistic forecast to the market as the story on the ground is bullish while the story in their Monetary Policy Statement remains grim. They are trying to change the carrier monetary policy slowly to avoid sending NZD to the month while still admitting all the new positive information,” said Brent Donnelly, a spot FX trader at HSBC. “I think this sets up an eventual acknowledgment that negative interest rates are the last thing the New Zealand economy needs.”

Donnelly said the RBNZ developed its forecasts to fit reality after the housing market exploded amid the pandemic and although New Zealand’s national borders remain closed for a period that can be extended to the end of 2021.

The resilient job market also surprised investors, traders, analysts and policymakers, with the unemployment rate rising only to 5.3% in the third quarter, the highest since the last quarter of 2016 but remaining below the 7.3% peak seen during the recovery from the crisis. financial 2008.

Parts of New Zealand experienced a second but short-lived lockdown in the last quarter while the nation’s entire tourism industry, which although valued at around 6% of annual GDP, has remained in lockdown during this time but despite this the rate of job loss has resulted in a smaller increase in unemployment.

While RBNZ policymakers may not now need to go as far as they suggested recently, this could also see New Zealand maintaining best-in-class national balance sheets as well as offering investors bond yields that remain higher than those in many other major economies.

This, in an environment where other nations’ national balances are already bloated and still deteriorating at a rapid rate while their central banks squeeze returns to investors in the bond market, has the potential to be a recipe for continued New Zealand Dollar strength. .

“The next employment data is very important,” said Donnelly. “I still like AUDNZD lower but I modified my parameters a little bit because of the big drop. I lowered my stop loss to the entry point and will try to buy half back at 1.0557.”

Above: NZD / USD rates are shown at daily intervals along with the AUD / NZD rates (black line, left axis).

– NZD outperforms risk assets as Americans head for the vote.
– Voting begins, US elections dominate ahead of New Zealand jobs data.
– USD response, key RBNZ policy for NZD short term outlook.

Image © Adobe Stock

• The GBP / NZD spot rate at time of writing: 1.9464
• Bank transfer rate (indicative guide): 1.8783-1.8919
• FX specialist provider (indicative guide): 1.9172-1.9289
• More information on specialist FX rates here

The New Zealand dollar rose on Tuesday as investors pursued riskier assets in anticipation of a Democratic Party clean win in Tuesday’s presidential election, which is just as important for the outlook as the Kiwi jobs report looms ahead of next week. Reserve Bank of New Zealand (RBNZ) policy decisions.

The New Zealand dollar rose against major currencies including the Dollar and Pound as polling stations opened in the US and investors stood firm on the back of bets implying that a Democratic ‘purge’ in both the house of Congress and the White House was the most likely outcome of the vote.

“The outcome of that event will determine the direction of NZD / USD in the near term, with the NZ employment data likely taking a back seat,” said Imre Speizer, chief NZ strategist at Westpac. “We maintain a positive outlook, targeting 0.6800 by year end, expecting the USD to weaken amid increasing risk sentiment.”

Pollster and analysts generally view Democratic candidate Joe Biden as a presidential candidate, while investors are betting big that President Donald Trump will be ousted from the White House once Americans vote there.

Markets may face days of tense waiting before actual results are confirmed although individual states will start announcing their results in the early hours of Wednesday morning and in New Zealand’s third quarter jobs wages report, which is expected to reveal a sharp rise in unemployment.

“The weakening New Zealand labor market conditions will reinforce expectations for additional RBNZ easing next year and limit NZD / USD strength. Our ASB counterparts project New Zealand’s unemployment rate to rise to 5.5% in Q3 (consensus: 5.3%) of 4.0% in the previous quarter, “said Elias Haddad, strategist at Commonwealth Bank of Australia. “The uncertainty of US elections and the possibility of a more severe setback for the global economic recovery will continue to support the strengthening of the USD in the near term.”

Above: NZD / USD is displayed at daily intervals with S&P 500 index futures (yellow line, left axis).

The consensus is looking for New Zealand’s unemployment rate to have increased from 4% to 5.3% in the last quarter, which analysts and economists say emphasizes the RBNZ’s need for the economy for sustained intensive monetary support. The RBNZ will announce its next policy decision on Wednesday November 11 and has prepared the market to expect interest rates to fall below zero next year, but whether the Kiwi maintains an upward bias will be determined largely in the short term by the US. election.

“The market is likely to return to looking at those numbers once the dust over the US election has subsided,” said Francesco Pesole, a strategist at ING. “While the NZD is set to be another beneficiary of a potential big win by Joe Biden (and one of the main losers if Trump wins), the short-term overvaluation (according to our fair value model) and the suggestion of an excessive net-long position is a rather upside potential. less compared to its closest counterpart, AUD. ”

RBNZ’s jubilant approach to rate cuts and quantitative easing has kept NZD / USD pinned below 0.68 since the start of its recovery rally in March, while a bearish market outlook against the US Dollar has seen the Kiwi support above 0.65, making for range bound trading months.

“NZD volatility is also likely to remain high this week as the RBA and US election results weigh on the NZD. Biden’s win could provide modest support for the NZD if risk sentiment improves,” said Nikolaos Sgouropoulos, strategist at Barclays.

The outcome of this election will be the difference between whether the US Dollar resumes six months of decline or slumps higher as short sellers are squeezed by either President Donald Trump’s surprise re-election, or a result still too close to call for the length of time it will take to count votes by post. that has never happened before.

“It is very likely that Donald Trump will be re-elected today, but very unlikely,” said Ian Shepherdson, chief economist at Pantheon macroeconomics. “Our base case has for some time been a sweep of blue, with Mr Biden winning comfortably, Democrats holding 50 to 52 Senate seats and retaining, at least, their strong majority in the House. Yesterday, non-partisan cooks final rating of the report. suggests that Democrats will increase their majority by 10 to 15 seats. Under current rules, Democrats will not have enough votes in the Senate to pass budget laws that increase spending but don’t increase revenue, without Republican support. ”

Above: NZD / USD is displayed at daily intervals with S&P 500 index futures (yellow line, left axis).

“NZD / GBP is technically neutral and in a very well established range,” said David Croy, strategist at ANZ.

Anything other than a decisive victory for the opposition candidate could make a contested election more likely, speculation suggests, while President Trump has only encouraged this view by continuing to make accusations of fraudulent play relating to the postal voting system. He criticized over the weekend the Supreme Court’s decision to allow ballots marked on election day to be counted days after the actual ballot in Pennsylvania, alleging this could facilitate fraud by opposition activists.

“The NZD is surprisingly resilient, in our view, given the deteriorating macro backdrop as COVID19 spreads through Europe and the US, as risk appetite has taken a more cautious tone ahead of the US election,” said Ray Attrill, head of FX. strategy on CATCH. “We can imagine some NZD volatility ahead, with the NZD walking softer into the US elections, bouncing higher on any post-election USD selloff, and then weakening again as the RBNZ statement gives traders little reason to buy NZD.”

Investors may have underestimated the possibility of a marginal victory by Biden who was later challenged in court, causing weeks of uncertainty, and have paid scant attention to the idea that President Trump could be re-elected. Both results could force investors to move away from, or at least reduce bets against the Dollar, which would lift the greenback and weigh on exchange rates such as NZD / USD.

The kiwi is one of the biggest losers from Donald Trump’s re-election given New Zealand’s close relationship with the Chinese economy which could be subject to ongoing or even new US tariffs during Trump’s second presidency. The prospect of a continuing trade war between the world’s two largest economies will lift the safe-haven Dollar and by implication, weigh on commodity currencies such as the Kiwi.

“Dem’s sweep should generate a relief rally in risk, but the focus will soon shift to the growth impact of the current second wave and perhaps more importantly, how aggressively Biden is pursuing well-publicized corporate tax increases, so I’m not sure how long it will take. the relief rally will persist, “said a trader at the London deals desk at JP Morgan in remarks Tuesday morning. “Trump’s win and we only buy USD.”

Above: NZD / USD is displayed at daily intervals with the US Dollar Index (yellow line, left axis).