The Kiwi dollar was in the news on Tuesday as reports indicated that New Zealand’s Finance Minister Nicola Willis would announce a new governor for the RBNZ. We should recall that the central bank has been without an official head since Adrian Orr’s surprise and early resignation back in March. The new Governor would presumably help manage market expectations about the future of
Critical Timing for Policy
The appointment comes at a critical point for the NZDUSD. Part of the currency pair puzzle relies on what is going on in the US, as the dollar has weakened in the wake of the Fed’s cut. However, the other important component is the NZD side, where signs of weakness are also evident.
Last week, Q2 GDP in the antipodean nation disappointed, coming in at -0.9% instead of the expected -0.3%. This marked a significant reversal from the +0.9% growth in the first quarter of the year, with manufacturing leading the decline. Part of the situation can be attributed to New Zealand’s largest trade partner, as China’s slow economic growth has weighed on its imports in the first part of the year. The NZDUSD was the worst-performing of the major currencies last week, following the news, as investors anticipate further easing from the central bank.
Restoring Confidence
The RBNZ’s new governor also has the challenge of restoring investor confidence after the shock of Orr’s exit earlier in the year. The controversy led to further departures, including board chair Neil Quigley. Reportedly, Orr quit over financing differences with Willis and felt it was impossible to have a working relationship with the Finance Minister.
Newspaper articles note that the appointment would be historic, as it would be the first time a woman has headed the RBNZ. But what is likely to have a bigger impact on the markets is smoothing the relationship between monetary policy and fiscal policy leaders. Then, analysts can get a better understanding of the potential hawkish or dovish direction of the new Governor.
More Cuts Ahead?
The appointment of a foreigner implies that the government is going over the heads of current MPC members, such as Deputy Governor Christian Hawkesby, who has managed the institution since Orr’s abrupt departure. If the Minster is dead-set on appointing a woman, Auckland economist and MPC member Prasanna Gai is an option. After all, the rumours about who the new governor will be are just rumours.
At the last meeting, the RBNZ cut rates to 3.0%, and forecast that it would fall to 2.5% by the end of the year. However, following last week’s data, some economists have begun to argue for a 50-basis-point cut at the October meeting. It may be that, regardless of who gets the job, the RBNZ will continue to ease for now.