MUFG Research discusses NZD tactical outlook and sees a scope for further downside in the near-term ahead of next week's RBNZ policy meeting.
"The kiwi was the worst performing G10 currency overnight, dropping from 0.6675 against the US dollar to 0.6640 at its lowest before recovering some of its losses into the morning. This was on the back of softer jobs data. Q/Q employment for Q1 in New Zealand contracted by -0.2% compared with expectations of 0.5% growth and Y/Y it grew only 1.5% vs. 2.2% expected.
This has increased market expectations that the RBNZ could cut interest rates at its next policy meeting. Average earnings grew somewhat more than expected at 1.1%. Looking at the OIS curve, swap pricing implies an interest rate cut at the next meeting on the 8th of May has gone up in probability from 40% last night to 60% this morning on the back of this data," MUFG notes.
"The RBNZ appears to be ahead of other G10 central banks in shifting to a more dovish policy stance, and this adjustment should continue to keep the kiwi under downward pressure in the near-term," MUFG adds.