Next up, the Fed
The RBNZ surprised with an aggressive 0.5% cash rate cut to 7.5% p.a., and yet the NZD/USD is down a mere 0.1% over the week. Quite simply there were bigger fish out there, namely the USD itself.
Nonetheless the local economy is in recession according to the RBNZ. The RB do intend to cut the cash rate again, explicitly stating “we have brought forward some of the projected interest rate reduction, but have not altered the expected overall decline” (a decline implied to take the OCR to near 6.5% p.a. and the market pricing most of this within six months – see Futures). There seems little prospect of any sharp growth pickup to prevent these rate cuts. The NZD trend is likely to remain downwards in the next few months. In the near-term it is the NZD/AUD that stands out as the currency most likely to depreciate.
As for the NZD/USD near-term, the market started unwinding last week some of the recent large global moves of the previous 7 weeks. This has been overdue and USD weakness will probably continue near-term, particularly if speculation of a US Fed rate cut increases ahead of the Tuesday FOMC decision (see calendar). This could provide some attractive selling levels for the NZD/USD.
