Talking Points

• NZD/USD falls as RBNZ hints at rate cut on the horizon
• Efforts to deflate housing may open the door for easing
• Bond yields fall with currency, implying dovish outlook

The New Zealand Dollar declined after the RBNZ held the official cash rate at 2.0 percent but stoked speculation that further easing is closer on the horizon than previously expected. While this lack of action from the RBNZ was in line with expectations, updated language from the central bank’s statement hinted that measures taken to cool the housing market are having the intended influence, opening the door for a cut.

With the current assumptions remaining that the RBNZ will be working toward further policy easing, the NZD/USD decline may indicate the market believes that successful cooling of the housing market will expedite the timing of the next rate cut. With the bank releasing inflations expectations in November, speculation has appeared to ramp up about the probability for a rate cut by the RBNZ in the near term. Tellingly, front end bond yields fell along with the currency as RBNZ statements crossed the wires.