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The Yen saw its 52 week best against the Kiwi 7 September at ¥74.804. From there the Kiwi strengthened to ¥82.07, perhaps in expectation that the RBNZ easing cycle would end.

At the 29 October meeting, the RBNZ maintained the OCR rate noting that, “...Global economic growth is below average and global inflation is low despite highly stimulatory monetary policy... ...concerns remain about the prospects for slower growth in China and East Asia... ...Financial markets are also uncertain about the timing and effects of monetary policy tightening in the United States and possible easings elsewhere...” Again, the RBNZ echoed the observations of the RBA by noting that stimulatory policies were having little effect.

The statement went on to note a stabilization in dairy prices, but concluded by stating “...some further reduction in the OCR seems likely. This will continue to depend on the emerging flow of economic data. It is appropriate at present to watch and wait...

Although the BOJ did expand its asset purchase program in December the move seemed to be technical, allowing the bank a little more flexibility with asset purchases via its current policy. The Kiwi stabilized vs the Yen then and continued to gain in spite of a further OCR reduction at the 10 December meeting, (just six days before the US Fed meeting).  Governor Wheeler cautioned that "...economic growth is below average and inflation is low, despite highly stimulatory monetary conditions. Financial markets remain concerned about weaker growth in emerging economies, particularly in China...”  The divergent US policy was also noted2. The statement concluded observing that “...There are a number of uncertainties and risks to this outlook... ...there are risks that dairy prices remain weak for longer... ...Monetary policy needs to be accommodative to help ensure that future average inflation settles near the middle of the target range...” However, the following sentence points out that the RBNZ will “...expect to achieve this at current interest rate settings, although the Bank will reduce rates if circumstances warrant...”  RBA Governor Stevens had repeatedly noted the lack of global growth in spite of widespread global stimulus. The RBNZ echoed the RBA in many statements. The RBA pointed out repeatedly that it was futile to cut rates further. So has the RBNZ accepted the same point of view as well?

Whether or not, the RBNZ had completed what it set out to do a year ago: cut rates as much as practicable. Judging by the statement of the last meeting, there’s a strong likelihood that the RBNZ will be reluctant to cut again. On the other hand, the BOJ seems to have given fair notice at the 29 January meeting.

Lastly, in a recent interview, a colleague (not a BOJ employee), of Governor Kuroda pointed out the absence of a floor in Governor Kuroda’s negative rate plan3.

In other words, it’s best to assume that any Yen strength vs the Kiwi might be short-lived.  

Mike Scrive
Technical Analyst
Accendo Markets

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1 RBNZ 23 July 2015
2 RBNZ 10 December 2015
3 Bloomberg 3-2-2016