had come after Deputy Governor’s Bescand had told banks to be ready for negative interest rates by year end. However, rates traders have taken a different view.
The two year swap fell on Wednesday and did not rally higher with the NZD. The swap rate is keeping a downward bias in place for the NZD.
The Bloomberg piece had rates traders as the most sober traders given:
- The policy rate of 0.25% and outlook for further downside (and potentially neg rates)
- The RBNZ’s preference for a flat curve
- The New Zealand’s economy heavy reliance on China for its trade prospects.
An alternative view
One area that will call this into question is the early start up of New Zealand’s economy. They came out of lockdown very early around the end of April. This means that the chances of NZD getting a headstart on the rest of the world are high. Furthermore, with the optimism around the COVID-19 vaccine from Moderna it may be that a ‘V’ type recovery does in fact play out. These two points would argue against bond trader positioning and favour more NZD upside. A neutral bias on NZD seems most sensible right now until conditions are clearer.