NZD: Supported by low approaching rates - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that a sense that rates are approaching lows in New Zealand and Australia are supporting the AUD and NZD. 

Key Quotes

“Both have also been supported by resurgent commodity prices for milk, coal, and iron ore.  Considering the increased political uncertainty in the USA and improved global growth indicators over recent months, it is easy to construct a positive outlook for both currencies.  Uncertainty over housing markets and debt levels in both countries are the main factors holding them back.

New Zealand may be closer to turning around its inflation outlook with the economy close to full employment and very strong labour market momentum.  Its most recent Q3 employment report showed the fastest annual pace of growth in aggregate hours worked (6.7%y/y) since 1993 and the fastest employment growth (6.1%y/y) in data available on Bloomberg since 1992.

Preventing this pace of employment growth spilling over to higher wages has been rapid, immigration and record participation (70.1%).  But the unemployment rate has fallen to 4.9%, a low since 2008, and maybe in the zone that is consistent with NAIRU.  Although there remains scant evidence of a pick-up in wage growth from low levels (around 1.6%y/y).

The case for the RBNZ to deliver a widely expected rate cut next week has sharply diminished.  But if they do not, the NZD may be set to surge significantly.  Even if they do cut, it will be difficult to sound significantly dovish to keep a lid on NZD.

The RBNZ would be hoping that the Fed proceeds to hike rates in December and growth in the USA and globally picks up to take appreciation pressure off the NZD.”