Halister News

(Bloomberg) -- RBNZ will be hard pressed in its monetary policy statement Thursday to avoid fueling further gains in kiwi, writes Bloomberg strategist Michael G. Wilson.

• NZD/USD has risen above trend-line resistance connecting September and November highs, and has all but erased losses caused by USD’s rally after Trump’s unexpected election victory on Nov. 8
• Kiwi has strengthened 5.2% this year against USD, while dropping 0.4% versus AUD, its major trading partner
• Two-year-ahead inflation expectations jumped to 1.92% in Q1, highest since Q3 2015, according to survey of businesses published on Reserve Bank’s website Tuesday
• Kiwi’s trade-weighted index is closing in on 80.52 peak seen in 2015; this should prompt a response from central bank, not doing so would send a bullish signal to the market that higher levels will be tolerated
• RBNZ last referred to NZD and TWI in Nov. when it said weak global conditions and low interest rates relative to N.Z. were keeping upward pressure on kiwi
  • “The exchange rate remains higher than is sustainable for balanced economic growth and, together with low global inflation, continues to generate negative inflation in the tradables sector. A decline in the exchange rate is needed”
  • Since then both NZD and TWI have risen even further
• Consumer inflation pressures are re-emerging, according to Treasury’s monthly economic indicators
  • Estimates show output gap is negative, but expected to rise, implying domestic price pressures will continue to build gradually
• RBNZ will leave its benchmark at 1.75% Thursday, according to all 18 economists surveyed by Bloomberg
• NZD/USD little changed at 0.7302 after climbing to 0.7376 Tuesday, approaching post-U.S. election high of 0.7393
  • A close above Nov. 8 high of 0.7403 would allow for an assault on September peak of 0.7486
• NOTE: Michael G. Wilson is an FX strategist who writes for First Word. The observations he makes are his own.