A Knee-Jerk Round Trip

NZD/USD spiked higher amid suspected short-covering as the RBNZ offered no huge surprises in its latest Monetary Policy Review. Policymakers left the OCR and LSAP settings unchanged, while reaffirming its forward guidance that the main policy rate will be on hold until March 2021. At the same time, the RBNZ made some interesting comments on the sequencing of alternative monetary policy tools, acknowledging staff advice that deploying a Funding for Lending Programme (FLP) programme before March 2021 could allow to add stimulus sooner. The MPC said that the FLP would be ready before the year-end, with members agreeing that "they preferred to launch an FLP before the end of 2020", while various policy tools could be deployed independently. Rhetoric surrounding the exchange rate was pretty bland.

• NZD/USD bounced off lows as the RBNZ announcement came in and jumped to $0.6647 before easing off. The pair last trades at $0.6621, a dozen pips shy of neutral levels. A spill-over from a weaker AUD (following a dovish revision to Westpac's RBA call) continues to weigh on the kiwi. The pair had a look through Sep 9 low of $0.6601 and a clean break here would open up Aug 20 low of $0.6489.