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Forex Flash: Wheeler comments not seen as game-changer for NZD – UBS

According to Research Analyst Gareth Berry at UBS, “the overnight remarks from RBNZ Governor Wheeler suggest a slightly greater intolerance of currency strength. However, at the same time the Governor acknowledged again that that there are no quick fixes or simple solutions to the problem.”

Ultimately, “We very much doubt this is a game changer for the NZD” Berry notes. Crucially, the Governor is no closer to resorting to radical measures such as Swiss-style FX ceilings, quantitative easing, or policy rate cuts (designed purely to induce currency weakness). He rejects all of these options and remains focused on longer-term solutions like improving "the productivity of capital", "ongoing fiscal adjustment", and "reducing dependence on the savings of others".

Be that as it may, two developments have caught investors’ eyes. First, Wheeler gently raised the possibility of a rate cut in the face of a strong currency - not to induce currency weakness, but rather to ensure monetary settings do not become excessively tight:
"All other things being equal, a higher exchange rate relative to expectations will lead to a lower than expected OCR". Secondly, Wheeler said the RBNZ is prepared "to smooth the peaks of the NZD/USD exchange rate", adding that when "the NZ dollar is coming under upward pressure, we want investors to know that the Kiwi is not a one way bet".

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