ANZ economics team labels Graeme Wheeler “The Great Educator”; it fits.

RBNZ Governor Graeme Wheeler yesterday laid out some home truths for markets. The NZD is not a one way bet. And markets looking for rate hikes in 2013 may be a step too far – unless the currency tanks that is. We come in this morning with the NZD/USD down a cent and the 2yr swap rate 6bps lower from pre-speech levels. The key messages to take out of the Governor speech were: 1) the RBNZ maintains the capacity to intervene if conditions are right – although the general level of the NZD remains beyond the bank’s control; 2) all else equal, a stronger currency delays the need for OCR hikes – we note that the TWI remains 4% above December MPS levels; 3) macro-prudential tools will soon be available to counter an overheated housing market, following a consultation period in March; and 4) micro reform targeted at improved productivity, a more balanced savings and investment playing field, and less reliance on borrowing offshore are a major part of the solution.
NZD/USD: Wheeler the Great Educator: A speech by Governor Wheeler yesterday highlighted why the RBNZ believes the NZD to be overvalued, and that the bank stands ready to intervene – but only when “market conditions exist to successfully achieve” their goal rate. They clearly state they do not have the capacity to “set a level” in the exchange rate, OCR changes are unlikely to work if directed solely at the currency, NZ needs zero interest rates before QE could be considered and SNB style caps are too great a risk, leaving few viable options to influence the exchange rate. Expected range: 0.8330 – 0.8400 ne way bet. And markets looking for rate hikes in 2013 may be a step too far – unless the currency tanks that is. We come in this morning with the NZD/USD down a cent and the 2yr swap rate 6bps lower from pre-speech levels. The key messages to take out of the Governor speech were: 1) the RBNZ maintains the capacity to intervene if conditions are right – although the general level of the NZD remains beyond the bank’s control; 2) all else equal, a stronger currency delays the need for OCR hikes – we note that the TWI remains 4% above December MPS levels; 3) macro-prudential tools will soon be available to counter an overheated housing market, following a consultation period in March; and 4) micro reform targeted at improved productivity, a more balanced savings and investment playing field, and less reliance on borrowing offshore are a major part of the solution. NZD/USD: Wheeler the Great Educator… A speech by Governor Wheeler yesterday highlighted why the RBNZ believes the NZD to be overvalued, and that the bank stands ready to intervene – but only when “market conditions exist to successfully achieve” their goal rate. They clearly state they do not have the capacity to “set a level” in the exchange rate, OCR changes are unlikely to work if directed solely at the currency, NZ needs zero interest rates before QE could be considered and SNB style caps are too great a risk, leaving few viable options to influence the exchange rate. Expected range: 0.8330 – 0.8400