The market reaction to the RBNZ’s dovish pivot was a thing of pure beauty. Wholesale interest rates dropped and the Kiwi plunged as the RBNZ delivered a track more than what was priced.
Kiwi rates swooped like a majestic kingfisher into water, with the 2-year swap rate dropping 16bps and splashing below 3% to 2.94% (from 3.1% prior to the announcement). And today, the two-year opens at a new cycle low of 2.90%. This is good news for indebted businesses and homeowning households. An eventual drop in the cash rate to 2.5% should see the 2-year swap rate on a glide-path to 2.8%, taking retail rates lower with it.
Looking at currencies, the Kiwi dollar dropped to a low of 58.21 on the day, breaking through key support levels (around 58.50) against the big dollar. We quickly moved to the lower end of our expected trading range with the Kiwi getting as low as 58.01 by the end of the week. We liked it. It was a good move for our exporters facing a 15% tariff into the US, albeit being somewhat short lived. Dovish messaging from Fed Chair Jay Powell over the weekend saw the USD weaken against the Kiwi. The result, were not too far off from where we were pre-MPS.
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