NZD: RBNZ on Edge - ING
Research Team at ING, favours a stable rates from the RBNZ, but it looks as though it will only be a temporary pause.
Key Quotes
“The
Reserve Bank of New Zealand is expected to leave monetary policy
unchanged again this week (Thursday morning in NZ, Wednesday evening in
Europe). We think it is closer than Bloomberg’s survey showing 3 out of
16 economists looking for a rate cut implies. On balance though, we
agree that the RBNZ will instead wait until the 9 June monetary policy
meeting.
The activity numbers have been performing pretty well
since last policy meeting. 4Q GDP came in at 0.9% QoQ versus
expectations of 0.7% while exports have been strengthening in 1Q16,
house price growth remains in double digits and headline inflation for
1Q16 came in a touch above expectations. Consequently, we agree with the
general market view that the RBNZ will probably hold fire at this
week’s meeting, but barring any material improvement in the inflation
outlook, it will probably cut rates again in June. We also believe that a
further cut in 2H16 (to 1.75%) remains on the cards.
As for the
currency implications, risk-reward means that we prefer to fade NZD
upside on the back of a rate cut disappointment this week (our base
case). A constructive risk environment is providing artificial support
for the NZD, with a dovish RBNZ playing second fiddle. This is best
depicted in AUD/NZD; 1Y swap rate spreads have moved 10bp in favour of a
higher AUD/NZD after last month’s surprise RBNZ cut, yet the pair has
traded sideways over the period. Staying long AUD/NZD is still a
preferred short-term tactical play (but we are wary that the RBA could
turn dovish in 2H16).
Given a currency-sensitive RBNZ and signs
of overstated USD weakness, we prefer to stay short NZD/USD – noting
that the pair remains particularly vulnerable to a rebound in US data
(and rising US yields).”
