NZD expected to appreciate in the longer run – Danske Bank

Analyst at Danske Bank Minna Kuusisto sees the Kiwi dollar gathering further traction in the longer run.

Key Quotes

“In August, the Reserve Bank of New Zealand cut the OCR by 25bp to 2.0%. The statement was very dovish as the central bank hinted at further cuts in upcoming meetings”.

“At the moment, the market is pricing around 35% probability of a cut in September and a 75% probability of a cut later this year. Simultaneously, the central bank is challenged by rising house prices. Residential property prices increased by 14% in July”.

“The central bank is considering stronger macro prudential measures, which should help mitigate financial system risks. Despite the heating up of the property market, we expect RBNZ to loosen policy further as disinflationary risks dominate the agenda”.

“Markets have priced out Fed hike expectations and, overall, globally accommodative monetary policy and the low interest rate environment have supported demand for higher yielding currencies such as the NZD. We raise our forecast level due to recent NZD appreciation”.

“Nevertheless, we expect further RBNZ easing to reverse the current NZD appreciation trend. Longer term, stronger global growth and higher commodity prices should, in our view, drive NZD higher again”.