NZ: Kiwi still flying high – Deutsche Bank

The RBNZ meets tomorrow, with no cash rate changed expected by the market (nor for the remainder of the year) and as a result, the focus will thus be on the commentary, explains Tim Baker, Strategist at Deutsche Bank.

Key Quotes

“Given the 4% jump in the NZD TWI since the last meeting, the RBNZ is likely to re-instate its concern about currency over-valuation. Indeed, except for the past two meetings, this has been a consistent theme of the RBNZ for several years now.”

“Preferring a lower currency is one thing – actually getting it is another. The high NZD may keep the RBNZ from hiking for some time, but it’s hard to see many other central banks moving a long way ahead of them. We see the NZD remaining high, and outperforming the AUD.”

“Why won’t the NZD fall? One obvious issue is that a currency, unlike other economic variables, is a relative price. For the NZD to fall, other currencies must rise against it, and it’s unclear that there should be many of them: 

• The strong migration and employment picture continue to support NZD vs the AUD.
• NZ’s growth remains robust - both consumer and capex spending are well above the G10 average.”

“And it’s not clear that valuation and positioning are headwinds:

• While the NZD is high vs history, and expensive on a PPP basis, it looks fair on our preferred DBeer metric. Commodity prices contribute to the DBeer valuation, and they’re at high levels. 
• Positioning isn’t stretched. IMM positioning is around neutral, while CORAX shows only moderate longs, after significant paring this year.”