As was widely expected the Reserve Bank of New Zealand (RBNZ) held the Official Cash Rate (OCR) at 1.00%. The press conference seemed slightly less dovish then past meetings. The language introduced conditionality for providing further easing. The MPC has created more flexibly for the next meeting yet giving the macro environments we forecast another 25bp cut in November. The global economic outlook has become more uncertain while the broader trend of central banks is for easing, will force RBNZ to react to potential NZD strength (driven by yields spread widening). MPC acknowledges that slowing global growth is the key risk to domestic outlook (Q2 GDP growth slowed to 2%) but believes monetary and fiscal stimulus will support the weakness. We are not going out on a limb on this call as the market is pricing in 80% probability of a 25bp cut at the November policy meeting. The 20% uncertainty is based on Governor Orr statement following the 50bp cut in August that unconventional measures such as quantitative easing were not out of the questions. Perhaps easing will come from another direction, which is a growing trend globally. NZDUSD continues to send bearish signals despite recovery bounce, as high beta currencies rallied. A broader USD setback would be needed as resistance at 0.6364 likely to restrict bullish moves for now.
By Peter Rosenstreich