Dialling up the NZD angst - Nomura

Analysts at Nomura noted that the NZD TWI continues to track above the RBNZ’s assumptions.

Key Quotes:

"In isolation this is a disinflationary impulse, via a damping impact on imported prices. Given the limited breadth of inflation pressures in New Zealand, the rise in the NZD is an added headwind that the RBNZ does not need. The RBNZ’s current view is that a “lower New Zealand dollar would help rebalance the growth outlook towards the tradeables sector”.

Even though the higher New Zealand terms of trade help to explain part of the NZD strength, policymakers may not necessarily view the resilience favourably.

In our view, the most likely outcome is for the RBNZ to repeat its current rhetoric on the NZD, but the risks are tilted towards some greater discomfort being expressed. Looking back, it was only in late 2017/early 2018 that the RBNZ stated that a further NZD depreciation “is needed”. "