RBNZ Smashes the Doves – TDS
Research Team at TDS, notes that the RBNZ decision implies 2% OCR floor
still in place while there are more headaches for long AUDNZD holders.
“The RBNZ left the cash rate at 2.25% today, in line with the TD view but defying 3/16 analysts looking for a -25bp cut to 2% and OIS shifting to a near 50/50 risk of a cut after yesterday’s very weak Australian inflation report.
Another disappointment for the markets was the absence of more aggressive jawboning of the exchange rate. We needed to see a reintroduction of something along the lines of “a higher exchange rate could imply a lower cash rate path than previously expected” to accompany today’s pause at 2.25% to take some steam out of the NZD. Unfortunately, the choice of “A lower New Zealand dollar is desirable to boost tradables inflation and assist the tradables sector” hit the markets like a limp lettuce and the NZD jumped a cent higher to $US0.6940. We recommend fading this move since the cash rate will be lower in due course.
Our base case is unchanged, a 25bp cut in June to 2%, accompanied by updated GDP and CPI forecasts. However, given outsized event risk in June (potential FOMC hike/disappointment, EU referendum) there is an increasing tail risk of even further delay into August (new timetable). Early OIS re-pricing is 60% priced for 2% for June. We’ll leave the OCR at 2% until year end and into mid-2017 as our base case for now.”