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29 Apr 2015
RBNZ expected to be dovish, NZD/USD to remain muted – Westpac
FXStreet (Barcelona) - Imre Speizer of Westpac, comments on the dovish and hawkish probabilities of RBNZ’s OCR review, further expects New Zealand’s central bank to maintain an easing bias, in line with market expectations.
Key Quotes
“Thursday’s RBNZ OCR Review should represent a dovish shift compared to the March meeting, but market reaction should be muted given last week’s speech let the cat out of the bag.”
“That speech, by Assistant Governor John McDermott, indicated that the outlook for the OCR is still on hold, but added that if domestic inflation pressures fell any further the RBNZ would consider cutting the OCR. This is effectively a conditional easing bias, and is what the market is expecting on Thursday.”
“Borrowing text from the speech, we would expect the press release’s policy paragraph to capture the spirit of: “The timing of future adjustments in interest rates will depend on the evolution of inflationary pressures in both the traded and non-traded sectors ... Evidence of weakening demand and domestic inflationary pressures would prompt us to consider lowering interest rates.” Such an outcome is already priced in, so 2yr swap rates will probably only falll by 1bp, and NZD/USD should be largely unmoved.”
“Our dovish scenario, to which we assign only a 10% probability, would need to be more emphatic about the likelihood of easing”
“A hawkish scenario (10% probability) would be one which repeated the policy paragraph from the March MPS: “Our central projection is consistent with a period of stability in the OCR. However, future interest rate adjustments, either up or down, will depend on the emerging flow of economic data”.”
Key Quotes
“Thursday’s RBNZ OCR Review should represent a dovish shift compared to the March meeting, but market reaction should be muted given last week’s speech let the cat out of the bag.”
“That speech, by Assistant Governor John McDermott, indicated that the outlook for the OCR is still on hold, but added that if domestic inflation pressures fell any further the RBNZ would consider cutting the OCR. This is effectively a conditional easing bias, and is what the market is expecting on Thursday.”
“Borrowing text from the speech, we would expect the press release’s policy paragraph to capture the spirit of: “The timing of future adjustments in interest rates will depend on the evolution of inflationary pressures in both the traded and non-traded sectors ... Evidence of weakening demand and domestic inflationary pressures would prompt us to consider lowering interest rates.” Such an outcome is already priced in, so 2yr swap rates will probably only falll by 1bp, and NZD/USD should be largely unmoved.”
“Our dovish scenario, to which we assign only a 10% probability, would need to be more emphatic about the likelihood of easing”
“A hawkish scenario (10% probability) would be one which repeated the policy paragraph from the March MPS: “Our central projection is consistent with a period of stability in the OCR. However, future interest rate adjustments, either up or down, will depend on the emerging flow of economic data”.”