Central Banks Trifecta: Policy Decisions by the Fed, RBNZ and BoJ - ANZ
Research Team at ANZ, notes that the Thursday sees the central bank trifecta, with policy decisions by the FOMC, RBNZ and BoJ.
“Odds of a 25bp OCR cut – at a shade below 35% – look appropriate given our view of the risk profile. With the RBNZ previously signalling an OCR cut, headline inflation expected to remain low, the NZD TWI elevated, and alternative policy measures likely to be introduced due to ongoing housing strength, 2.25% is unlikely to be the OCR trough this cycle.
We have pencilled in a June OCR cut, given the RBNZ’s preference to use MPS dates. However, if the tradeoffs and limits of additional monetary easing become more palpable and the global scene continues to stabilise, there is the possibility that local rates back up from current levels. This is not our core strategic view, but the possibility we are close to lows this cycle has grown.
BoJ unease over the yen could see further policy easing next week, although the likely efficacy of this is dubious, and it was interesting to see the ECB shy away from commenting on the stronger euro last week.
No change from the Fed is expected, although the policy assessment is likely to acknowledge the improved market environment and tenor of the global data since March. But with market odds of a 25bp Fed hike this week at effectively 0%, and just 21% odds of a hike by June and about 65% by the end of the year, a clear disconnect between the market and Fed remains. But the Yellen-led Fed will likely want to see more evidence of a US recovery before increasing the hawkish rhetoric again.
The trick will be for the Fed to deliver a policy assessment that emphasises that rates will be going up, but in a fashion that limits fallout for Treasury yields. Right here and now, mixed data and inflation nuances should provide the Fed with comfort that it has not fallen behind the curve.”