8 Jun 2015
RBNZ might cut rates this week – RBS
FXStreet (Barcelona) - Greg Gibbs, FX Trading Strategist at RBS, explains that RBNZ will have little to lose from cutting rates this week, and a rate cut this week might be sufficient to weaken NZD/USD further.
Key Quotes
“The 30 April policy statement did not give a strong indication that a rate cut was imminent. It said only that, “The timing of future adjustments in the OCR will depend on how inflationary pressures evolve in both the non-traded and traded sectors. It would be appropriate to lower the OCR if demand weakens, and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target.”
“However, recent research reports suggest the economy could grow much faster without triggering inflation, and current levels of inflation are very low (headline CPI 0.1%y/y, underlying model measures around 1.3%y/y in Q1 ). With little risk of a policy mistake from cutting rates, and a desire for higher inflation and a still lower exchange rate, the RBNZ may decide to cut rates this week.”
“At this stage, Bloomberg reports that 6 out of 16 analysts are forecasting a 25bp rate cut. The OIS market is pricing in 43% odds that a 25bp cut is delivered on Thursday. But it is already pricing in 46bp of cuts over 12 months, almost two 25bp cuts.”
“As such a cut will not be a complete surprise, but it is likely to be sufficient to see some further weakness in the NZD.”
“Ahead of the RBNZ meeting this week are manufacturing volume data that feed into the Q1 GDP report and retail sales data for May. These data points will play some part in the rates decision, but if they have decided to move, the data is unlikely to sway them at this stage.”
Key Quotes
“The 30 April policy statement did not give a strong indication that a rate cut was imminent. It said only that, “The timing of future adjustments in the OCR will depend on how inflationary pressures evolve in both the non-traded and traded sectors. It would be appropriate to lower the OCR if demand weakens, and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target.”
“However, recent research reports suggest the economy could grow much faster without triggering inflation, and current levels of inflation are very low (headline CPI 0.1%y/y, underlying model measures around 1.3%y/y in Q1 ). With little risk of a policy mistake from cutting rates, and a desire for higher inflation and a still lower exchange rate, the RBNZ may decide to cut rates this week.”
“At this stage, Bloomberg reports that 6 out of 16 analysts are forecasting a 25bp rate cut. The OIS market is pricing in 43% odds that a 25bp cut is delivered on Thursday. But it is already pricing in 46bp of cuts over 12 months, almost two 25bp cuts.”
“As such a cut will not be a complete surprise, but it is likely to be sufficient to see some further weakness in the NZD.”
“Ahead of the RBNZ meeting this week are manufacturing volume data that feed into the Q1 GDP report and retail sales data for May. These data points will play some part in the rates decision, but if they have decided to move, the data is unlikely to sway them at this stage.”