NZD: How will the RBNZ respond to the new government? - ING

The RBNZ meeting (Wed) will dominate the Ne Zealand’s domestic agenda in a fairly otherwise quiet week and ill guide he NZD, according to analysts at ING.

Key Quotes

“It will be particularly interesting to hear what central bank officials have to say given the new Labour government's intention to reform the RBNZ's mandate to include a 'full employment' objective. Under a Fed-like dual-mandate approach, we note that there may be some scope for policy rates to stay lower for longer as some labour market slack still needs to be absorbed. Equally, however, we point to pre-election comments by the RBNZ's McDermott noting that the output gap is close to zero.”

“We think NZ political risks are fairly priced into the currency - and the story may, in fact, be slightly overdone. Indeed, AUD/NZD looks to have topped out and with our fair value estimates pointing to a range of 1.0920-1.1020, there is still some risk premium to be priced out of crosses.”