Morgan Stanley on the kiwi and yen
RBNZ and house prices. In the latest bi-annual Financial Stability Report, the RBNZ said risks to the financial stability outlook have increased in the past six months. It highlighted the housing market dilemma within an environment of capital costs falling below the nominal expansion of GDP. New Zealand's house prices have risen by 12%Y and now have high price to income ratios in Auckland in particular.
The RBNZ's Wheeler today made clear that the bank wants to primarily use macro-prudential measures to deal with house price inflation but did not announce anything new today, disappointing FX and rates traders who were expecting new measures,allowing further rate cuts soon. We are bearish on the NZD by year end .
USDJPY has reached 109.38 getting close to our 109.40 corrective targetbefore easing off. According to Reuters, Japan would intervene at USDJPY 90- 95,citing an interview with special Cabinet adviser Koichi Hamada.
Markets may be inclined to test Japan's authorities pushing USDJPY near to proposed intervention levels . The main reason for projected JPY strength lies in Japan's financial institutions increasing their currency hedges, reacting to substantial Q1 portfolio losses and Japan's retail accounts cutting its record carry trade exposure.
Sign up to eFXplus here to get a 20% discount on your monthly or annual subscription. Offer ends 5/31.