The kiwi jumps as market expectations shift after the policy decision today
The new lending program unveiled by the RBNZ today sort of hints at their reluctance to dive into the potential for negative rates - at least not immediately - and that is causing some rethinking in market odds, which has bolstered the kiwi.
Coming into today's decision, the OIS market had priced in a move to negative rates by the RBNZ some time after its May policy meeting next year:
Following the decision from earlier today, the OIS market now only sees a 15 bps rate cut by the end of Q3 2021 instead:
Despite New Zealand handling the virus crisis rather admirably, the fact that its borders are still shut is still a major detriment to its economy and the outlook.
Negative rates may not be the first priority in the RBNZ response - for now at least - but that doesn't mean that it is off the table.
If the global virus outlook doesn't show much improvement in Q1 next year, it wouldn't be a surprise to see the RBNZ revisit the negative rates debate again.
The kiwi is rallying strongly on the back of the decision earlier but gains may be fleeting as much of the "optimism" has already been priced in now.
That said, NZD/USD is breaking to its highest levels since March 2019 with little resistance before last year's highs near 0.6940 and then the December 2018 high at 0.6970. In the bigger picture, the pair also looks poised to break above its 200-week moving average for the first time since April 2018. So, that is a key technical break to be mindful about.
