Maybank FX Flash: NZD - Retain Bearish Bias - 3 Jun 2015

NZD:  Retain Bearish Bias

        In the previous two NZD reports on 30th Apr and 11th May, we articulated our bearish views on the NZD/USD, NZD/SGD, and NZD/MYR. As of 1 Jun, our objectives for the above-mentioned NZD-crosses were met. 

        The move lower was driven by a mix of factors including mounting expectation of a RBNZ rate cut in the upcoming meeting (11 Jun) amid broad USD strength. Looking ahead we caution for a potential upside squeeze in the NZD/USD, possibly towards 0.7230, 0.7330, but wish to reiterate that the bearish bias remains intact. As such we remain better sellers of NZD on rallies.

        Against a backdrop of checking all of RBNZ’s criteria for future easing - inflation at 15-year low with a risk of slipping into negative territories, low levels of dairy prices for longer, benign wage inflation, and fresh macro-prudential policies on the housing market, we believe the RBNZ has scope to lower the OCR by 25bps to 3.25% at its upcoming MPC meeting. An accommodative monetary policy will help to support output growth above potential and help lift non-tradeables inflation and eventually return headline inflation gradually to the middle of the target band.