NZD/USD got belted yesterday but it is still the best carry in the G10, and it is the only major currency that carries positively against the USD, so it could recover once the dust settles, in the view of analysts at ANZ Bank.

RBNZ feels it has done enough to tame inflation

“The Kiwi remains on the back foot after getting slaughtered in the wake of the extraordinary dovish RBNZ MPS, which suggests, on the face of it that the RBNZ feels it has done enough to tame inflation. While markets were taken aback, they haven’t fully bought into it, with the risk of another hike still priced in, but it’s forced a complete re-think for the Kiwi.” 

“On the one hand, the decision took away about 40bp of carry we thought we’d get (markets were pricing in a 5.9% peak in the OCR and the RBNZ is at 5.5%), but on the other, the NZD is still the only G10 currency that offers carry vs the USD, and that won’t be missed by anyone who wants to short the USD. So, even though the Kiwi’s pride has taken a hit, it’s still #1 in the carry stakes. That’s a positive.”