FUNDAMENTAL BIAS: BULLISH 1. Developments surrounding the global risk outlook. As a high-beta currency, NZD has remained broadly well supported in times of risk-on and as the overall risk outlook and tolerance of the market has improved over recent months. With coronavirus vaccines programs now underway in many countries, we expect the months ahead to see a further gradual improvement in the overall risk outlook and global economic outlook. 2. The Monetary Policy outlook for the RBNZ Going into 2021, the monetary policy outlook for the RBNZ were positive after the bank pushed back against the need for negative rates, as well as a string of positive economic data points showed the impact from the pandemic was less severe on the NZ economy than previously anticipated. However, optimism has diminished in recent sessions as new legislation by New Zealand’s government to cool its housing market is expected to provide the RBNZ with more time before being forced to normalize policy. Consequently, market expectations for the timing of future rate hikes have been pushed back. 3. The country’s economic and health developments With the new macroprudential policies put in place by the NZ government, it will be very important to keep close track of the virus situation in NZ as well as the incoming data. Due to the recent Macroprudential policies put in place by the NZ government our focus has turned to the incoming economic data as a guideline for whether the RBNZ will potentially move forward with tapering QE this year or not. This week’s CPI data surprised to the upside, and even though it was just marginally above expectations, it was the first important quarterly data suggesting that everything is still intact for the bank to follow in the BOC’s footsteps sometime this year. Incoming data could still change that view, but for now the fundamental outlook for the NZD remains bullish .



more…