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Slow vaccine rollout and increased policy resistance to market pressure leave the Credit Suisse analyst team neutral on NZD/USD.

Outside of housing, the case for hikes is not so clear in NZ

“We remain neutral on NZD and expect NZD/USD to trade between 0.6870 and 0.7200. In AUD/NZD, we think that mean reversion will drive a slow convergence back to 1.0800.  

“New Zealand’s vaccine rollout is lagging the rest of the developed world; investors might now reassess the validity of NZ’s so-far successful strategy of ‘micro-lockdowns’.”

“Terms of trade have been aided by resilient dairy prices. Services exports should pick up when the travel bubble with Australia opens, but ultimately the slow vaccine rollout precludes the possibility of a more extensive reopening of the crucial tourism sector.”

“With the government having taken macroprudential measures to cool down housing, the RBNZ is less likely to address the issue through its traditional monetary policy tools. The more fundamentals-driven case for tightening is far from strong: the unemployment rate is still at 2016 levels, domestic CPI metrics remain unthreatening and upside growth potential is limited by closed international borders.”  

“Given how responsive the currency has been to changes in expectations around non-traditional monetary policy, we think the RBNZ may prefer to tiptoe around the possibility of tightening in order to avoid an unwelcome rally in the NZD.”