NZD / USD falls back below 0.7150 from multi-year highs

• The NZD / USD has retreated from highs at 0.7170 to around 0.7150 in recent trading.
• However, the NZD remains one of the best performing G10 currencies following strong GDP data and positive feedback on the NZD from the NZ Minister of Finance.

He NZD / USD It has retraced from fresh multi-year highs set earlier in the session above 0.7170 and is now trading closer to 0.7150. The pair is still trading with solid gains of more than 0.6% or more than 40 pips on the day and is still at the top of the G10 performance chart.

Strong third quarter GDP data

GDP data released at 9:45 p.m. GMT on Wednesday showed the economy recovered at a quarter-on-quarter rate of 14.0% faster than expected in the third quarter of 2020, having contracted at a rate of 11.0% in the second quarter as result of the initial blockade of Covid-19.

Westpac claims that Wednesday’s GDP report “confirmed what we have been saying for many months: successfully eliminating the spread of Covid-19 has allowed the New Zealand economy to quickly return to action once restrictions were lifted” . The bank notes that the result was “stronger than our forecast and, together with previous revisions, places the level of GDP slightly above its pre-Covid level … an extraordinary result while international travel and tourism remains. almost completely absent. “

While the stronger-than-forecast data has certainly given the NZD a boost, ANZ is more cautious going forward; “The ongoing divergence between industries suggests that New Zealand is experiencing a two-speed recovery … Activity in some industries is off-chain, while others are really struggling,” the bank notes. “The tug of war between housing-induced domestic demand (and resilient agriculture) in the face of the lost summer of international tourism suggests that this divergence will persist in the short term, with the resulting tensions and strains in the labor market due to extreme mismatches of skills “, concludes the bank.

New Zealand Finance Minister makes aggressive comments

New Zealand Finance Minister Grant Robertson commented during Thursday’s Asia Pacific session that the government is not very upset by the current level of NZD, comments that markets appear to have taken as a nod to the recent appreciation and a green light for the NZD / USD rally to continue. Robertson attributed the gains in NZD to the stronger-than-expected economic recovery.

In addition, Robertson noted concern regarding the current debt-to-income ratios in the country. These comments could also help NZD, here’s why …

There seems to be a growing consensus within the New Zealand government that the ultra-relaxed monetary policy stance of the RBNZ in recent years is contributing to the construction of “unaffordable” housing in the country. Of course, this makes sense since low interest rates lower the cost of mortgages, increasing the demand for housing.

A few weeks ago, the New Zealand government raised the idea of ​​including house price inflation in the general inflation mandate of the RBNZ as a means of re-controlling house price growth (note that house prices have skyrocketed since the start of the pandemic).

If they were forced to target house price inflation as well, the RBNZ would probably have to raise interest rates and reduce its QE program immediately, given that house price inflation in recent years has significantly outpaced consumer price inflation. Of course, the RBNZ has responded by saying that they don’t think you should do this.

Robertson’s comments about the country’s high debt-to-income ratio could be a nod to a new line of attack the government could take against the RBNZ, an accusation that the RBNZ’s loose monetary policy has encouraged excessive levels of borrowing.

In other words, the New Zealand government seems increasingly aggressive with monetary policy. Of course, they have the power to legislate adjustments to the RBNZ’s mandate or policy tools. If it seems more and more that they will follow this route, in the end it will be a positive NZD.