RBNZ Cycle Low for the OCR will be 1.88% - Westpac
Imre Speizer, Senior Market Strategist at Westpac, suggests that the NZ
market pricing for the RBNZ’s OCR low has stabilised, now implying the
cycle low for the OCR will be 1.88% (from 1.82% last week).
“That implies the market sees around a 50% chance the OCR will fall below 2.0% to 1.75% by early 2017.
The main market focus right now, though, is whether the RBNZ cuts in April or June. A few weeks ago, chances were seen as high as 50%, in the wake of a sharp rise in the NZD and a pessimistic reassessment of the Fed’s next rate hike. Since then, we have seen strong NZ housing data and a slightly stronger than expected non-tradeables CPI, causing the market to lower its April chances to only 28%.
Swap Yield Outlook:
1 week: We expect the 2yr to range between 2.20% and 2.30% ahead of the 28 April OCR Review. The chances of an April cut have receded, but we consider June likely so that the 2yr should be capped by 2.30% (2% OCR plus a maximum 30bp premium).
3 months: Our cycle low range of 2.10%-2.20% is based on a terminal OCR of 2.0% and a risk premium of 10bp-20bp. CPI inflation for Q1 was in line with RBNZ forecasts, which means that all else equal, the RBNZ should cut to 2.0% as it projected in March.
1 year: Our macro-economic forecast sees the 2yr at 2.10% in a year’s time, assuming the OCR is at 2.0% by then.”