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Why the RBNZ is reluctant to intervene? - TDS

FXStreet (Bali) - Annette Beacher and Prash Newnaha, FX Strategists at TDS, bet for the RBNZ to remain on the sidelines without intervening the NZD for now.

Key Quotes

"Like most non-USD exporting countries, the RBNZ would prefer that a more hawkish U.S. Federal Reserve strengthen the USD, enticing global investors (or perhaps just the speculators) to look elsewhere for yield. However, you must also ‘be careful what you wish for’."

"Despite the persistent strong/overvalued NZD, tradable inflation continues to march higher in New Zealand (June qtr was +0.1%/yr after two years of outright deflation)."

"In addition, Fonterra announced half a billion dollars of milk processing plant investment across the country, stretching a country already rebuilding Christchurch and adding supply in Auckland."

"Should the NZD weaken materially from here, just as another (business investment) construction upswing is underway, the goal of returning the cash rate to ‘neutral’ is unlikely to be sufficient to cap inflationary pressures. This could explain why the RBNZ is actually reluctant to intervene, just in case it works too well."

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