New Zealand Dollar: Resistance test as RBNZ turns hawkish – BBH

Finance

New Zealand Dollar: Resistance test as RBNZ turns hawkish – BBH

Brown Brothers Harriman highlights that the New Zealand Dollar (NZD) is outperforming, with NZD/USD approaching the 0.6000 resistance as New Zealand business sentiment improves and RBNZ Assistant Governor Silk signals all options, including a 50 bps hike, are on the table for July.

Kiwi supported by hawkish RBNZ

“NZD is outperforming across the board and NZD/USD is closing in on key resistance at 0.6000. The ANZ business activity outlook lifted 6 points in May to +25.6, indicative of an ongoing recovery in real GDP growth.”

“RBNZ Assistant Governor Silk, who voted in favor of keeping rates on hold at 2.25% this week, said all options will be on the table at the next July 8 RBNZ meeting, including a jumbo 50bps hike.”

“The swaps curve implies 85% odds the RBNZ delivers a first 25bps rate hike in July and a total of 115bps of tightening over the next twelve months. The RBNZ policy path projection is less aggressive and implies 75bps of hikes by Q2 next year.”

“Bottom line: NZD/USD can lift above 0.6000 if the energy shock continues to fade. But New Zealands negative output gap is likely to temper RBNZ tightening bets and limit a more pronounced upswing in NZD.”