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Kiwi remains on backfoot after dovish surprise from RBNZ

Thursday 28th March 2019

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The New Zealand dollar remained under pressure after the central bank unexpectedly said its next rate move was likely to be a cut, dropping its neutral stance.

The kiwi traded at 68.04 US cents at 8am from 68.01 US cents at 5pm in Wellington. The trade-weighted index was at 73.83 from 73.72. 

The central bank kept rates on hold at 1.75 percent yesterday but the New Zealand dollar fell more than a cent when it said the next move was likely to be down. 

"Kiwi remains on the back foot. The RBNZ surprised markets by taking a dovish stance yesterday, which saw pricing of future OCR cuts brought forward dramatically," said ANZ FX/rates strategist Sandeep Parekh. 

"After weeks of no on-the-record communication, this shift in stance was a hand grenade wrapped in a few thin paragraphs," said TD Securities chief Asia-Pacific macro strategist Annette Beacher.  She noted, however, that domestic demand was strong in the final months of 2018 and partial data point to a "decent start" to first-quarter gross domestic product.

Key will be upcoming inflation and jobs data in April and neither are expected to make a May rate cut "a done deal."  

"The governor may 'want to cut,' but we expect the data flow to make the hurdle to cut much higher than he or the market currently thinks," Beacher said. 

Parekh said that given the central bank's concerns about softer domestic growth, today's ANZ business outlook survey - due at 1pm local time - will be closely watched.

Markets will also be watching for any Brexit-related headlines on the day as the UK parliament is set to vote on a series of options. The kiwi traded at 51.34 British pence from 51.59 late yesterday. 

It was at 96.01 Australian cents from 95.71 Australian cents, at 60.40 euro cents from 60.42, at 75.13 Japanese yen from 75.18 and at 4.5779 Chinese yuan from 4.5667.


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