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Kiwi Heads South on Bets That RBNZ Will Flip-Flop and Cut Rates

Kiwi Heads South on Bets That RBNZ Will Flip-Flop and Cut Rates

(Bloomberg) -- Bearish investors are betting that the Reserve Bank of New Zealand will flip-flop again and cut interest rates this year. If economic data this week backs their case, the kiwi is likely to face more selling pressure.

While the currency staged a strong one-day rally on Feb. 12 when the central bank suggested it was unlikely to cut rates this year, the move was little more than a speed bump in the kiwi’s 6% rout since the start of January.

Asset managers who began to turn negative on the New Zealand dollar before the RBNZ’s surprise comments on rates have reason to remain skeptical. Policy makers have u-turned before, and the economic impact of the coronavirus looms as a big risk.

Kiwi Heads South on Bets That RBNZ Will Flip-Flop and Cut Rates

Investors are on guard after Governor Adrian Orr wrong-footed them this time last year. A month on from damping expectations of easing by indicating that the chances of a rate cut hadn’t increased, Orr came out at the RBNZ’s March meeting and said his next move was more likely to be down.

Money markets are pricing in a 25 basis points cut by November, despite the governor saying again on Friday that the RBNZ is in “no rush to go lower” with rates.

They’ll weigh these words against a slew of economic data this week.

Retail sales figures, excluding inflation, will be watched for their impact on the nation’s growth number due next month. Trade and credit-card spending are also on the agenda.

Virus Test

Business confidence data that has been clawing its way back from an 11-year low in September may be even more important.

It should help gauge whether the central bank needs to factor in more impact from the coronavirus to its policy outlook.

If this is the case, technical indicators such as slow stochastics suggest the sell-off in the kiwi may have further to run.

Below are the region’s key economic data and events due this week:

  • Monday, Feb. 24: New Zealand retail sales ex inflation and January credit card spending, Singapore CPI, Thailand customs trade balance
  • Tuesday, Feb. 25: South Korea consumer confidence
  • Wednesday, Feb. 26: Australia construction work done, South Korea business manufacturing/non-manufacturing surveys, Singapore industrial production
  • Thursday, Feb. 27: Australia private capex, New Zealand trade balance and February ANZ business confidence, Bank of Korea rate decision
  • Friday, Feb. 28: Australia private sector credit, New Zealand ANZ consumer confidence, Tokyo CPI, Japan jobless rate, retail sales and industrial production, South Korea industrial production, Thailand BoP current account and trade balance, India GDP and 2020 annual estimate
  • Saturday, Feb. 29: China manufacturing and non-manufacturing PMI

To contact the reporter on this story: David Finnerty in Singapore at dfinnerty4@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Brett Miller

©2020 Bloomberg L.P.