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Feb 28 - 02:55 PM

ING: Advising Caution on NZD and AUD Weakness Post-RBNZ Meeting

By eFXdata  —  Feb 28 - 12:45 PM

Synopsis:

Following the Reserve Bank of New Zealand's (RBNZ) decision to keep rates unchanged and its marginally adjusted peak OCR forecast, ING advises against buying into the resultant NZD and AUD weakness. Despite the RBNZ's statement showing a softening stance on tightening, the NZD experienced a significant drop, attributed to unwinding of net-long positions and expectations of a rate hike. ING's medium-term view remains unchanged, citing the RBNZ's forecasts and the attractiveness of NZD's carry potential.

Key Insights:

  • RBNZ Rate Decision: The RBNZ maintained the OCR at its current level, with a slight adjustment in the peak rate forecast, signaling a less aggressive tightening path.

  • Inflation Forecasts: The central bank revised its near-term inflation forecast downwards, aligning it with recent data, but kept medium-term projections unchanged.

  • NZD and AUD Reaction: Post-announcement, the NZD saw over a 1% drop, likely due to position unwinding and misplaced rate hike expectations.

Conclusion:

Despite the initial negative reaction in the NZD and AUD following the RBNZ's latest policy meeting, ING suggests caution against interpreting this as a sign of sustained weakness. The central bank's forecasts and the still attractive carry potential for the NZD support a more nuanced medium-term outlook. Investors are advised to consider the broader implications of the RBNZ's stance before making moves based on immediate market reactions.

Source:
ING Research/Market Commentary

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