Wheeler's comments to support NZD in the short-term

NZD saw handsome gains overnight, and this despite continued risk aversion! Decent Q4 labour market data which recorded a surprise fall of the unemployment rate from 6.0% to 5.3% was one of the reasons. But the main reason behind the appreciation was RBNZ governor Graeme Wheeler's speech in which he had underlined that the RBNZ intends to make the most of the flexibility of the inflation target. 

The intention behind the statement was clear, the RBNZ would not react to the deflationary effect of the low oil price with an automatic rate cut. The RBNZ would accept temporary deviations to its inflation target. In times when many central banks are causing speculation about further monetary policy easing, the simple doubt that action is required right away can cause the currency to appreciate.

"We do not doubt that the RBNZ would take action again if necessary should an appreciating NZD endanger the return to the inflation target and expect lower NZD-USD levels medium term. At least short term Wheeler might well delay the depreciation of NZD though." said Commerzbank in a research note to clients.