1 Mar 2016
NZD: Little prospect of an RBNZ cut next week - BNZ
Kymberly Martin, Senior Market Strategist at BNZ, sees little prospect of an RBNZ cut next week, though believe risks of a cut in the year ahead have risen.
Key Quotes
“Continued dairy weakness combined with a resilient NZ TWI, global uncertainties and recent declines in NZ inflation expectations add weight to calls for a cut. By contrast, continued solidity in growth, housing and net migration indicators, suggests the current OCR may be sufficiently stimulatory. More time is needed to tell where the balance lies.
We think market pricing of a 25% probability of a cut next week is too high. But pricing is not sufficiently high that the Bank might feel compelled to cut for fear of an aggressive rebound in the currency if not delivered.
We still think that the market could price in up to 50bps of RBNZ rate cuts (even if not delivered), in coming weeks/months, from around 38bps currently. This could see NZ 2-year swap trade down toward its mid-2012 lows below 2.35%. At that time the OCR was at 2.50% and the market priced around 45bps of OCR cuts for the year ahead (though ultimately not delivered).”
Key Quotes
“Continued dairy weakness combined with a resilient NZ TWI, global uncertainties and recent declines in NZ inflation expectations add weight to calls for a cut. By contrast, continued solidity in growth, housing and net migration indicators, suggests the current OCR may be sufficiently stimulatory. More time is needed to tell where the balance lies.
We think market pricing of a 25% probability of a cut next week is too high. But pricing is not sufficiently high that the Bank might feel compelled to cut for fear of an aggressive rebound in the currency if not delivered.
We still think that the market could price in up to 50bps of RBNZ rate cuts (even if not delivered), in coming weeks/months, from around 38bps currently. This could see NZ 2-year swap trade down toward its mid-2012 lows below 2.35%. At that time the OCR was at 2.50% and the market priced around 45bps of OCR cuts for the year ahead (though ultimately not delivered).”