The New Zealand dollar finished 2017 on a weak note after the September national election resulted in a center-left and left populist government coalition that vowed to curtail foreign purchases of New Zealand real estate and limit immigration.
After stabilising early this year on the assumption that the government’s bark would prove worse than its bite the NZD, or kiwi, took a fresh dive as Adrian Orr was nominated Reserve Bank of New Zealand governor in March. Orr quickly established himself as a loud dove on policy, opening up forward guidance to the potential for both rate cuts as well as rate hikes in an environment in which most global central banks were clearly pointing toward the withdrawal of policy accommodation.
The trade-weighted kiwi bottomed out in early October before launching a near vertical ascent, even as global market. In past market cycles of weak global risk sentiment, the kiwi has fared rather poorly and we struggle to put together a narrative that explains the kiwi’s marked resilience and even strength into the end of this year.
JP Morgan NZD CPI-adjusted real effective exchange rate
After a long period of weakness for the reasons we mentioned above, the kiwi sprang to life from early October and crossed well back above its 40-week moving average. The period of NZD strength in from 2011 to 2014 flatters the currency, as the historic range stretches all the way down to 80 and even lower – suggesting that levels significantly above the 100 area are overvalued.