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The New Zealand dollar has been one of the best performing G10 currencies resulting in NZD/USD rising back to within touching distance of the 0.7000-level for the first time since the middle of 2018 after the news suggesting New Zealand (NZ) Finance Minister Grant Robertson’s search for advice on whether to include stability in house prices as a factor in the RBNZ remit, per MUFG Bank.

Key quotes

“Finance Minister Grant Robertson has written to RBNZ Governor Adrian Orr asking him to consider amending the bank’s remit to include stability in house prices as a factor for monetary policy. He is concerned that an extended period of low-interest rates combined with a shortfall in housing supply could put upward pressure on prices and threaten financial stability. However, he stressed that he was not proposing any changes to the RBNZ’s policy mandate or independence which would have put more pressure on the RBNZ to place more weight on house price stability when setting monetary policy going forward.”

“The RBNZ will continue to have more discretion when setting policy and it remains to be seen whether the housing market will take on greater weight. Governor Orr has already added that they already take house prices into consideration.” 

“The developments will market participants to speculate that the housing market could overheat and prompt the RBNZ to scale back easing sooner than major central banks thereby boosting demand for the kiwi. A more likely first step though would be to use macroprudential policy tools to address housing market concerns.” 

“Bloomberg has reported that the overnight indexed swap markets are now pricing just over a 25% chance of a rate cut by the end of 2021 compared to just over 50% at the start of the week. The prospect of negative rates is becoming ever more distant.”

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