Reserve Bank of New Zealand (RBNZ) Governor Alan Bollard gave an extended radio interview this morning following his recent attendance at the IMF, World Bank and G20 meetings in Washington. The general tone of the interview was very much in line with the recent RBNZ September MPS and our view that the RBNZ will follow the path of least regret and postpone the reversal of the 50bp rate cut administered after the Christchurch earthquake until Q1 12.
As discussed in detail in the FX Quarterly, we expect a deterioration of the European crisis to extend the short-term underperformance of cyclical assets globally, as well as strengthen the USD because of its safe-haven status. As such, we expect underperformance in both the AUD/USD and NZD/USD near-term with 3-month targets of 0.93 and 0.75 respectively.
Bollard provided some insights into current RBNZ thinking in today’s interview, despite much of the discussion being centred on the European debt crisis and US fiscal deficit.
Key Points:
- Bollard “comfortable” with where NZ interest rates are currently.
- Still expects a soft landing in China which will provide continued support to Australian growth and commodity prices.
- Said the RBNZ is still very comfortable with its September MPS forecasts for GDP growth.
- Thinks NZD is still overvalued at 77 cents.
- Noted that it is currently “very hard for Australasian banks to get medium-term funding in European markets.” Said it is not a problem now but could be should it continue through next year.
- Noted a risk that if European activity continues to deteriorate it may negatively impact Chinese economic growth, Australian economic growth, commodity prices and therefore, NZ economic growth.
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