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FX Update: 

These are strange times we live in, House prices are going through the roof and we have fresh talk of a double-dip recession.

Wednesday’s RBNZ policy meeting was overall dovish with the central bank maintaining its record low rate of 0.25% and keeping current policy in place. 

The Government Bond purchase cap of 100B NZD stays in place with the central Bank saying – it will take “considerable time and patience” for the banks goal of 2.0% inflation target and employment goal of under 4.0% (maximum sustainable) to be achieved. The central bank is expecting inflation to click above 2.0% which will be mostly driven by supply disruptions originating from the pandemic. We expect the RBNZ to leave rates on hold until well into late 2022 at the very earliest. With fourth quarter GDP coming in at a surprising -1.0% the economy is staring down the barrel of a new economic recession if first quarter 2021 prints negative as well. This data is announced on the 16th of June. 

The policy statement did concede that the new housing investor tax policy is likely to weigh on growth but how much won’t be known for some time, perhaps a couple of years. Of note, the healthy homes new standards suggest all landlords must be compliant by 1 July 2024 – a double hit for property investors with significant rental rises predicted. We should see the current pace of the lightning speed of recent months property values calm as affordability and loan-to-value restriction woes kick in.

March statistics however report further rises to property prices with the medium house price nationally now 826,300 up 5.9% from February’s 780,000.  

The New Zealand Dollar is up across the board this week, driven by ongoing USD weakness leading to risk on which superseded any downside bias driven by dovish RBNZ comments. 

Key Points:

  • Worldwide coronavirus cases surpass 139.665 million with over 2.998 million official deaths
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