13 Nov 2013
Flash: NZD high but not overvalued - RBS
FXstreet.com (Barcelona) - It is not clear that the Kiwi is over-valued, notes Greg Gibbs, FX Strategist at RBS.
Key Quotes
"The RBNZ intervened in a modest amount in Nov/Dec and Apr to cap the NZD. In the 25 July OCR review the RBNZ changed its wording to saying the NZD was “high”. While RBNZ officials suggest we can read too much into these shifts in phrasing, the market took this as a less dovish stance and rates rose on this statement."
"After the NZD’s recent recovery and expressions of concern by RBNZ Governor Wheeler in the press, many thought the RBNZ might revert to the ‘over-valued’ language in the 31 October OCR review. It did not, but it did re-emphasise the linkage between the currency and rates policy."
"The reality is that it is not clear that the NZD is over-valued, even though it has returned to close to its average highs of earlier in the year. Economic growth is considerably stronger, inflation may have bottomed, dairy prices and the terms of trade are at a 40 year high, and rate rises are now clearly in view."
"The RBNZ and the government may want a policy mix that involves a lower exchange rate and higher interest rate, but it needs to get in line, there are many economies that want the same, but have a better claim."
Key Quotes
"The RBNZ intervened in a modest amount in Nov/Dec and Apr to cap the NZD. In the 25 July OCR review the RBNZ changed its wording to saying the NZD was “high”. While RBNZ officials suggest we can read too much into these shifts in phrasing, the market took this as a less dovish stance and rates rose on this statement."
"After the NZD’s recent recovery and expressions of concern by RBNZ Governor Wheeler in the press, many thought the RBNZ might revert to the ‘over-valued’ language in the 31 October OCR review. It did not, but it did re-emphasise the linkage between the currency and rates policy."
"The reality is that it is not clear that the NZD is over-valued, even though it has returned to close to its average highs of earlier in the year. Economic growth is considerably stronger, inflation may have bottomed, dairy prices and the terms of trade are at a 40 year high, and rate rises are now clearly in view."
"The RBNZ and the government may want a policy mix that involves a lower exchange rate and higher interest rate, but it needs to get in line, there are many economies that want the same, but have a better claim."