30 Oct 2013
Flash: RBNZ to change policy sentence on Thursday - Westpac
FXstreet.com (Barcelona) - According to Imre Speizer, Strategist at Westpac, the RBNZ will err n the side of caution and strike a more dovish tone compared to the September MPS, citing the high exchange rate, however, Speizer adds that "a dovish shift is fully priced, and could result in a modest bounce in swap rates if the shift is only slight."
Key Quotes
"Over the course of this year, the RBNZ has been steadily building the case for OCR hikes in 2014. We have been forecasting a March 2014 hike, and until a week ago, markets were pricing about the same.
"However, that pricing started to be pared as market thoughts turned to next week’s OCR Review and it was clear the exchange rate was higher than the RBNZ forecast in September."
"That paring accelerated on 26 October when RBNZ Governor Wheeler said in an interview that "the high exchange rate will diminish inflation pressures and that may mean ...some degree of freedom in respect of the timing of future OCR increases"."
"Our central scenario (to which we assign a 70% chance) is that the RBNZ may change its policy sentence, tacking something like "and on the trajectory of the exchange rate" on the end of its September sentence "The extent and timing of the rise in policy rates will depend largely on the degree to which momentum in the housing market and construction sector spills over into broader demand and inflation pressures."
"A dovish scenario (20% chance) would tack on more extreme language such as "should the exchange rate remain elevated, the need for tighter monetary policy may be reduced." 2yr swap rates would fall 12bp and the curve would steepen."
"A hawkish scenario (10% chance) would omit mention of the exchange rate and mention the rise in inflation, domestic momentum and commodity prices. 2yr swap rates would rise 16bp in response and the curve would flatten."
Key Quotes
"Over the course of this year, the RBNZ has been steadily building the case for OCR hikes in 2014. We have been forecasting a March 2014 hike, and until a week ago, markets were pricing about the same.
"However, that pricing started to be pared as market thoughts turned to next week’s OCR Review and it was clear the exchange rate was higher than the RBNZ forecast in September."
"That paring accelerated on 26 October when RBNZ Governor Wheeler said in an interview that "the high exchange rate will diminish inflation pressures and that may mean ...some degree of freedom in respect of the timing of future OCR increases"."
"Our central scenario (to which we assign a 70% chance) is that the RBNZ may change its policy sentence, tacking something like "and on the trajectory of the exchange rate" on the end of its September sentence "The extent and timing of the rise in policy rates will depend largely on the degree to which momentum in the housing market and construction sector spills over into broader demand and inflation pressures."
"A dovish scenario (20% chance) would tack on more extreme language such as "should the exchange rate remain elevated, the need for tighter monetary policy may be reduced." 2yr swap rates would fall 12bp and the curve would steepen."
"A hawkish scenario (10% chance) would omit mention of the exchange rate and mention the rise in inflation, domestic momentum and commodity prices. 2yr swap rates would rise 16bp in response and the curve would flatten."