Clear downside bias for New Zealand dollar

According to its monetary policy statement for Sep 2015, the central bank (RBNZ) assumed that the NZD would fall over the next year to about 65 on a trade-weighted Index (TWI) basis. The RBNZ TWI was last reported at 72 on 22 Oct.

Due to political pressuresto meetitsinflation target, RBNZ has cut rates three times in Jun-Sep15 by a total 75bps to 2.75%. CPI inflation flattened at 0.3- 0.4% YoY in the first three quarters of 2015, below its official 1-3% target.

The trade balance reversed into a whopping NZD 20bn deficit in Jan-Aug15 from a NZD 7.3bn surplus in 2014. The current account deficit is expected to widen to 4-5% of GDP this year.

On a positive note, the government fulfilled its election promise to return to a budget surplus. Fitch maintained a positive outlook for the country's sovereign "AA" debt rating.

One final concern. An improved fiscal position against a deteriorating current account deficit amidst easy monetary policy has been known to reflect overleveraging in the private sector.