NZD Outlook: FXWW

From the FXWW Chatroom: We believe the timing is right to fade politically-motivated NZD weakness since the market’s worst fears on potential policy shifts do not appear to be playing out. NZ First has already stated that it did not secure a mandate to shift to a Singapore-style monetary policy regime suggesting its demands on the currency are going to fall by the wayside. Discussion of even moderate shifts in the RBNZ mandate have not featured prominently following the election suggesting this is not among the first priorities for the new government. Labour has suggested it does not favor cutbacks in immigration to the extent that NZ First has advocated for and the pathway to shifts in investment policies on housing remain unclear. The latter could present an NZD negative in time, but with NZD already having underperformed vs. underlying fundamentals since July, slow progress looks likely to be associated with a stronger currency A more benign-than-expected transition in government should open the door to NZD-positive rises in rate expectations ahead of the November RBNZ meeting, since it looks likely that inflation forecasts will have to be revised higher following the recent CPI reading.

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