The New Zealand Dollar rallied against the US Dollar in the wake of the RBNZ's much-anticipated interest rate cut on November 10th but it has not been able to recover against the Pound.
The Pound to New Zealand Dollar exchange rate is quoted at 1.7103 at the time of writing - well above the low of the past 24-hours situated at 1.6727 but below the 24-hour best at 1.7240.
The resillience in GBP/NZD comes in the face of New Zealand Dollar strength being exercised against the US Dollar.
Part of the resillience can be put down to Sterling quite liking the ascent of Donald Trump to the US Presidency. To be fair, Sterling is more of a benign bystander watching the Euro and commodity Dollar's suffer on Trump's ascent.
The USD/NZD is however in the red following an interest rate cut at the Reserve Bank of New Zealand (RBNZ).
Typically a cut to interest rates spark a currency fall - unless markets were expecting the cut which they clearly were.
Further, the tone of the RBNZ's accompanying statement suggests this will be the final cut in the series, and markets can now start pricing in potential interest rate rises in the future which is NZD-supportive.
"The RBNZ has delivered a hawkish cut. As anticipated, the cash rate was lowered to 1.75% from 2.00% but this was accompanied by a strong acknowledgement that further cuts are unlikely to be necessary," says analyst Stephen Toplis at BNZ in Auckland.
The RBNZ again noted its concern that house price inflation is posing risks to financial stability. It also highlighted the relative weakness in housing market activity post the LVR changes that have been made.
Nonetheless, it is equally clear to Toplis that the Bank is unwilling to read too much into recent developments, instead needing more time to see how sustainable the recent downshift in activity and pricing will be.
What Does a Trump Presidency Mean for the New Zealand Dollar?
The New Zealand Dollar fell a whopping 2% against the Pound as markets reacted to news Donald Trump was making a charge for the White House.
The slump in the Kiwi was understandable in that market were unsure on Trump and sold stocks, commodities and commodity currencies in tandem.
The subsequent recovery confirms markets have seen there is little fundamental reason to justify the initial moves and stocks and commodity currencies such as the New Zealand Dollar subsequently recovered.
So what does Trump offer the NZ Dollar going forward?
BNZ's Toplis has reflected on what Trump could mean for RBNZ policy decisions, and thus the NZD, going forward.
In BNZ's opinion, and clearly Governor Wheeler’s too, not much is to change in the near term.
However, Toplis cites two key Trump outcomes that New Zealand should be interested in:
1) He’s anti-globalisation so will stymie TPP and the stimulation of global trade generally. In the first instance this might be negative for New Zealand but might just mean that New Zealand has to be more effective in making bilateral rather than multilateral agreements.
2) Trump’s expansionary fiscal tendencies are likely to result in higher US inflation and higher US bond yields. These higher yields will also put upward pressure on New Zealand longer dated interest rates. It may also
result in a higher USD.
"We, like everyone else, will need more time and detail before drawing any firmer conclusions so, for now at least, it will have no real bearing on our forward OCR interest rate track," says Toplis.
BNZ's formal forecasts, which are unchanged as a result of the MPS, have the cash rate on hold for a considerable period of time.
"We forecast a first rate hike in May 2018. For all intents and purposes, this is too far away to be meaningful," says Toplis.