8 Dec 2015
NZD: RBNZ possible scenarios for the upcoming meet - Westpac
FXStreet (Delhi) – Imre Speizer, Research Analyst at Westpac, expects the RBNZ to cut the OCR by 25bp to 2.50% at Thursday’s OCR Review, and to leave the door open for more. NZ swap rates and the NZD should fall slightly in response.
Key Quotes
“That said, it will be a close call, with our economists (and the OIS market) giving a cut a 60% chance - not exactly reeking of confidence. And even under a cut scenario, it’s possible the NZD could rise if the guidance isn’t perceived as dovish enough. We’d guess market positioning to be slightly received swaps and slight long NZD/USD.
We lay out four possible scenarios:
(a) Very hawkish from the market’s viewpoint (40% chance) - on hold at 2.75%. Even if the RBNZ issued an explicit easing bias, we suspect markets would be very disappointed and push swap rates and the NZD much higher.
(b) Slightly hawkish (10%) - a 25bp cut but guidance implying the easing cycle is over. Markets would need to push short-term rates slightly higher to correctly reflect a 2.5% OCR, and the NZD would follow suit.
(c) Slightly dovish (40%) - a 25bp cut, accompanied by a language which allows for either further easing or an on hold period. Markets are currently pricing a 40% chance of a sub-2.5% OCR, and will look for encouragement in the text. Swap rates and the NZD may fall slightly in response.
(d) Very dovish (10%) - a 25bp cut, accompanied by an explicit easing bias. Given the market’s perception that 2.5% is a hurdle for the RBNZ, such an admission would be a surprise. Swap rates and the NZD would fall sharply in response.”
Key Quotes
“That said, it will be a close call, with our economists (and the OIS market) giving a cut a 60% chance - not exactly reeking of confidence. And even under a cut scenario, it’s possible the NZD could rise if the guidance isn’t perceived as dovish enough. We’d guess market positioning to be slightly received swaps and slight long NZD/USD.
We lay out four possible scenarios:
(a) Very hawkish from the market’s viewpoint (40% chance) - on hold at 2.75%. Even if the RBNZ issued an explicit easing bias, we suspect markets would be very disappointed and push swap rates and the NZD much higher.
(b) Slightly hawkish (10%) - a 25bp cut but guidance implying the easing cycle is over. Markets would need to push short-term rates slightly higher to correctly reflect a 2.5% OCR, and the NZD would follow suit.
(c) Slightly dovish (40%) - a 25bp cut, accompanied by a language which allows for either further easing or an on hold period. Markets are currently pricing a 40% chance of a sub-2.5% OCR, and will look for encouragement in the text. Swap rates and the NZD may fall slightly in response.
(d) Very dovish (10%) - a 25bp cut, accompanied by an explicit easing bias. Given the market’s perception that 2.5% is a hurdle for the RBNZ, such an admission would be a surprise. Swap rates and the NZD would fall sharply in response.”