NZD driven by monetary policy
In August this year the RBNZ cut interest rates by a surprise 50bps at their rate meeting. Governor Orr was very bearish in his language at the press conference and he didn't rule out the RBNZ needing to take further action. He saw negative interest rates as an option and even the prospect of QE.
When November came along the RBNZ was expected to cut interest rates further from 1.00% to 0.75%. However, the RBNZ surprised markets again, but this time by not cutting interest rates. Current implied interest rate cuts below:
The RBNZ is now in a wait and see mode.
One of the key indicators coming up for the RBNZ is the GDP data coming out this week on Wednesday December 18 at 21:45GMT. The other factor for the NZD is the US-China trade phase 1 trade deal due to be signed in the New Year. A deal should support the higher beta currencies like AUD and NZD. Goldman Sachs consider the NZD to be one of the biggest potential beneficiaries from Yuan appreciation on a US-China trade deal signing and tariff rollback. Furthermore, GS's economists are anticipating a moderate recovery in the NZD economy through 2020, so there could be a moderate recovery in NZD and more downside in AUDNZD as the central bank diverge in their outlooks. Certainly AUDNZD is a pair to watch.
However, there is a mixed response from the market as to how good the US-China trade deal actually is. We also know, from looking at the USMCA deal, that President Trump will have some more bumps along the way in getting any deal with China done. It is just his style, so my view is still cautious on whether this deal will get signed at the first attempt.
