JP Morgan in Australia update on the NZD after the Reserve Bank of New Zealand rate cut. Bottom line is that most NZD weakness related to the RBNZ's recent rate cut may have run its course.
Notes that NZD has been resilient since the cut:
- improving global investor sentiment centred on expectations of a determined Fed rate cutting cycle
- more supportive global growth cycle seen ahead
- bank recommends "trimming shorts" on the pair
More specifically on the RBNZ moving earlier than expected:
- "Markets were pricing a lot of easing already, but having started the process, and a bit earlier than expected, there is now slightly greater comfort that the economy will stabilise into 2025, allowing risk premium for a more disorderly downturn to be trimmed to an extent,"
- "NZD/USD is starting to look cheap on this cycle’s most reliable drivers (growth and US rates), and lacks local data catalysts near-term to extend the sell-off"
- "further NZD weakness will be harder to come by after RBNZ’s first cut; trim shorts" "we also see expectations for 50bp moves into 1H25 as somewhat aggressive"
