NZD surges as the RBNZ cuts but may peak soon - BNPP

Research Team at BNP Paribas, notes that the NZD this morning rose to a 12-month high at 0.7340 as the RBNZ cut interest rates as expected by 25 bps to 2.25% which was fully priced into markets.

Key Quotes

“Still, the central bank indicated that at least one more rate cut would be needed which likely played into the fact that this level could not be sustained. NZD is, like its neighbour AUD, benefitting from the rally in global equity prices as signalled by the STEER™ model.

The greatest risk for NZD from here should be the market repricing the risk of a Fed rate hike at the September FOMC meeting which would likely provide two impluses:  a weakening of global equites and an appreciation of the USD. Both of these factors would likely weigh on the NZD. With this combination as our base case, we forecast that NZDUSD appears toppy at current levels and forecast a fall in the pair to 0.68 by end Q3 and 0.65 by yearend 2016.”