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26 Apr 2016
RBNZ: Policy likely to be left unchanged - ANZ
Research Team at ANZ, suggests that the consensus is far from settled heading into the RBNZ’s decision this week.
Key Quotes
A case for cutting can certainly be made. However, we do not buy the argument that the RBNZ needs to respond to NZD strength, particularly as it is being driven by offshore – not local – factors.
We expect policy to be left unchanged, with an easing bias retained. While we still forecast the OCR heading lower in time, our conviction that that would be the right thing for New Zealand is dwindling. Each passing day reveals more stratospheric housing anecdotes.
Interest rate strategy: A no-change but dovish tone from the RBNZ is expected to result in few fireworks despite markets being 35% priced for a cut. Improving international sentiment has seen global yields lift off lows and curves steepen. The Fed is also not expected to move rates this week, but confirmation of previous policy biases should maintain steepening pressure both abroad and locally. Spreads with global yields are biased to narrow further despite the fact that local issuance is set to rise.
Currency strategy: The currency is a thorn in the side of the RBNZ, but we don’t expect it to be a determining factor this week. NZD/USD will go where the broader USD goes and with USD positioning near lows, Fed rhetoric cautious, and the global outlook improving, there are risks of USD strength if the Fed wishes to leave June as an option. NZD/AUD is sitting near 2½ year lows and given markets are already pricing RBNZ cuts, it is worth exporters exploring hedging options.”
Key Quotes
A case for cutting can certainly be made. However, we do not buy the argument that the RBNZ needs to respond to NZD strength, particularly as it is being driven by offshore – not local – factors.
We expect policy to be left unchanged, with an easing bias retained. While we still forecast the OCR heading lower in time, our conviction that that would be the right thing for New Zealand is dwindling. Each passing day reveals more stratospheric housing anecdotes.
Interest rate strategy: A no-change but dovish tone from the RBNZ is expected to result in few fireworks despite markets being 35% priced for a cut. Improving international sentiment has seen global yields lift off lows and curves steepen. The Fed is also not expected to move rates this week, but confirmation of previous policy biases should maintain steepening pressure both abroad and locally. Spreads with global yields are biased to narrow further despite the fact that local issuance is set to rise.
Currency strategy: The currency is a thorn in the side of the RBNZ, but we don’t expect it to be a determining factor this week. NZD/USD will go where the broader USD goes and with USD positioning near lows, Fed rhetoric cautious, and the global outlook improving, there are risks of USD strength if the Fed wishes to leave June as an option. NZD/AUD is sitting near 2½ year lows and given markets are already pricing RBNZ cuts, it is worth exporters exploring hedging options.”