Synopsis:

MUFG maintains its short position on NZD/CAD, targeting a move towards 0.8030, following the Reserve Bank of New Zealand's (RBNZ) unexpected rate cut and dovish outlook.

Key Points:

1. NZD Weakness:

   • The New Zealand dollar weakened by about 1.0% overnight against both the Australian dollar and the US dollar, with NZD/USD nearing 0.6000 and AUD/NZD rising above 1.1000.

2. RBNZ Rate Cut:

   • The RBNZ unexpectedly cut rates by 25bps to 5.25%, starting an easing cycle earlier than previously indicated. The decision reflects increased confidence that inflation is returning to within the 1.0-3.0% target band.

3. Economic Outlook:

   • The RBNZ expects New Zealand’s economy to contract again in Q2 and Q3, marking the third "technical" recession period since late 2022. The RBNZ's updated forward guidance signals potential for more aggressive easing depending on inflation and economic conditions.

Conclusion:

MUFG maintains a bearish stance on the New Zealand dollar, reinforcing its short NZD/CAD position with a target of 0.8030, as the RBNZ's dovish shift could lead to further weakness in the NZD.