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  • NZD/JPY rallies on RBNZ Orr signal for a pause in interest rate cuts.  
  • NZD/JPY seeking out the 200-HR  moving average.

NZD/JPY has rallied to the upside, taking out stops above 68 the figure, although there is plenty of room to go on the upside considering how short the market is of the bird and the implications for the Reserve Bank of New Zealand being ahead of the curve, so to speak, with respect to the race to ease and preempt deteriorating global growth and imported risks for the domestic economies.  

NZD/JPY rallied from a low of 67.72 to a high of 0.6808, 0.48% higher on the session so far following the comments from RBNZ’s Orr which have put a line in the sand with respect to their current path of easing, for now at least.  RBNZ Orr has said that while the central bank will do whatever it takes to support New Zealand economy, the rate cut reduces probably of having to do more later.

Key comments:

  • We can afford to wait, watch and observe what’s happening.
  • Inflation expectations is an important signal to watch.
  • Rate cut reduces the probability of having to do more later.
  • Rate reduces probably of having to do more later.
  • Negative can be an impactful tool broadly across the economy.

RBNZ to cut again, but not until November

Looking ahead, when considering the Q1 2019 GDP matched 0.6%  forecast  and the prior mark on a quarterly basis that grew past 2.4% expectations to print upwardly revised prior of 2.5%,  while this remains below a 3% preferable growth rate, it is hardly making the case for negative rates any time soon.  

In 2018, the  RBNZ  stated that if annual GDP growth stays below 3% over 2019 and it’s ‘clear growth’ is not ‘picking up’ as expected,  “the OCR would need to be reduced by around 100 basis points”  by mid-2020.  The OCR is now at 1.00%.  When the central bank made that statement,  rates  were at 1.75% which would mean, we are looking down the barrel of an OCR rate  down to just 0.75%. The RBNZ has said it would only go unconventional if, after exhausting standard policy, inflation was still a long way below 2%. Right now, there’s little prospect of that happening. It’s also stressed that its recent half-point cut should reduce the need for such unconventional policies. It’s perhaps likely that the RBNZ will cut again, but not until, say  November, taking interest rates to 0.75%.  What the pair, NZD/JPY, will now rely upon are geopolitics and a flight to safety that would attract investors into the Yen which could keep a lid on rallies at this juncture which currently targets the 200-hour  moving average.

NZD/JPY levels