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KIWI: UBS suggest that "the external drivers of the depreciation of the NZD
include higher U.S. rates, trade tensions, EM tensions & a fall in milk prices.
But these drags have largely run their course, in our view. The NZD has bounced
since phase 2 of tariffs was announced indicating that much of the news was
already priced. As these issues fade, the undervaluation of the NZD can reverse.
The RBNZ was surprisingly dovish at the August MPS, choosing to emphasise the
downside risks to its base case and the chance of 100bps of easing should growth
slow. But Q2 GDP recorded a sharp bounce, double the bank's expectations. While
some of the bounce was due to one-off factors, there were also one-off drags,
which will give back in Q3. Against this growth backdrop, coupled with slowly
rising inflation, it is hard to see the RBNZ becoming even more dovish. To be
sure, the ongoing falls in business and consumer confidence will likely keep the
bank on the dovish side but we do not expect them to cut rates. We exp. NZD/USD
to appreciate to $0.72 vs the USD by end-19. The worst of the global
depreciation pressures on the currency are likely behind us. With domestic
capacity constraints building, we expect the RBNZ to hike rates in Nov. '19."