20 Jan 2016
NZ CPI slumps on food and fuel, OIS priced for mid-year cut - TDS
FXStreet (Delhi) – Annette Beacher, Chief Asia-Pac Macro Strategist at TD Securities, suggests that New Zealand Dec qtr CPI fell by an outsized -0.5% to be a wafer-thin +0.1%/yr: as expected by TD but well below RBNZ/mkt at -0.2%/qtr.
Key Quotes
“NZD slumped to $US0.64 on the sticker shock headline, while 2yr swaps are -6-7bp or so lower at 2.62%. At last, NZD TWI at 71 has eased from the Dec highs (74.6) but is still well above the RBNZ “assumption” of 69.4 for Q1. OIS is now all-but priced for a mid-year cut to 2.25% and we are certainly warming to that view, but the “hawkish cut” last month makes us rather cautious just now.
In the quarter: tradable prices slumped by -1.8%/qtr (vegetables and fuel, where a stronger NZD was also at play here) while domestic prices rose by +0.5% (1.8%/yr) via higher costs of new housing and airfares (seasonal).
Looking ahead: January petrol prices to date are already -5.5% lower than Dec qtr, hinting at another decent drag from the Transport sector. Mar qtr seasonal patterns tend to be on the upside, especially Tobacco/Alcohol and Education, and sometimes Health. Overall our flash forecast for Mar qtr is FLAT, or +0.2%/yr, with the RBNZ’s key mid-point 2% target only met in late 2017 as models annoyingly tend to mean revert.
For the RBNZ: Governor Wheeler surprised many with his hawkish cut last month, signaling the weakest possible conditional easing bias. With dairy prices still sliding, and 2% inflation more elusive than ever, we expect a genuine easing bias next week, Thursday 28 January. Anything less will reverse today’s NZD sell-off, and more. OIS is 100% priced for a mid-year cut, and if the RBNZ voices concern about achieving 2% inflation, then we’ll be calling for action. We are just not there yet.”
Key Quotes
“NZD slumped to $US0.64 on the sticker shock headline, while 2yr swaps are -6-7bp or so lower at 2.62%. At last, NZD TWI at 71 has eased from the Dec highs (74.6) but is still well above the RBNZ “assumption” of 69.4 for Q1. OIS is now all-but priced for a mid-year cut to 2.25% and we are certainly warming to that view, but the “hawkish cut” last month makes us rather cautious just now.
In the quarter: tradable prices slumped by -1.8%/qtr (vegetables and fuel, where a stronger NZD was also at play here) while domestic prices rose by +0.5% (1.8%/yr) via higher costs of new housing and airfares (seasonal).
Looking ahead: January petrol prices to date are already -5.5% lower than Dec qtr, hinting at another decent drag from the Transport sector. Mar qtr seasonal patterns tend to be on the upside, especially Tobacco/Alcohol and Education, and sometimes Health. Overall our flash forecast for Mar qtr is FLAT, or +0.2%/yr, with the RBNZ’s key mid-point 2% target only met in late 2017 as models annoyingly tend to mean revert.
For the RBNZ: Governor Wheeler surprised many with his hawkish cut last month, signaling the weakest possible conditional easing bias. With dairy prices still sliding, and 2% inflation more elusive than ever, we expect a genuine easing bias next week, Thursday 28 January. Anything less will reverse today’s NZD sell-off, and more. OIS is 100% priced for a mid-year cut, and if the RBNZ voices concern about achieving 2% inflation, then we’ll be calling for action. We are just not there yet.”