From BAML Insights :


NZD has come under pressure during today’s session after the RBNZ flagged that ongoing currency strength remains a key concern at their first meeting of 2017.  NZDUSD has traded down to 0.7194 lows from 0.7300 (-1.5%) with AUDNZD back up through 1.0550 to highs of 1.0594 and the top of recent ranges.  Whilst the central bank left the OCR unchanged at 1.75%, they revised their expected rate path to be at 1.8% from 1.7% but moved timing out to mid-2019 before rising to 2.0% into 2020.  Furthermore, the RBNZ now sees inflation returning to the middle of the target band (2%) by June 2019, two quarters later than at the November MPS.  Despite this adjustment in the long-term, the market has seized on the premise that the RBNZ may keep rates lower for longer in order to maintain downward pressure on the NZD.  As a result, today’s market interests have been dominated by NZD downside vs the USD and AUD.  BofAML’s team caution that whilst the short-term price action may extend on this view, there is the risk that inflationary pressures rear their head sooner than expected and thus maintain their view that the RBNZ will begin hiking in early 2018 for two rate hikes that year.

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