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RBNZ unlikely to hike rates before H2 2015 - Nomura

FXStreet (Bali) - Charles St-Arnaud, Senior Economist at Nomura, believes that the RBNZ will keep its policy rate unchanged at 3.5% this week and reiterate that the central bank is taking a pause until the second half of 2015.

Key Quotes

"The economic data since the September meeting have been mixed, with growth in Q2 coming in stronger than expected, while inflation came in weaker. Moreover, dairy prices continued to decline, while NZD depreciated significantly."

"We believe the RBNZ will keep its policy rate unchanged at 3.5% at this week's meeting and reiterate that the central bank is taking a pause rather than ending the hiking cycle. However, given the increased uncertainty coming from the recent financial market volatility and the slower global growth, we see a risk that the RBNZ could remove the reference to future rate hikes."

"The part of the statement referring to the inflation outlook is likely to garner more attention than usual, given the weaker-than-expected inflation report last week. However, we believe that the sharp NZD depreciation is likely to push inflation higher in Q4. As a result, the outlook for inflation may have changed only marginally from September."

"On the currency, we believe the central bank will take note of the recent depreciation in NZD. As such, we think the RBNZ is likely to modify its comment on the currency from the September meeting, which stated that “the exchange rate has yet to adjust materially to the lower commodity prices. Its current level remains unjustified and unsustainable.”

"However, we believe that the central bank will reiterate that it “expects a further significant depreciation, which should be reinforced as monetary policy in the US begins to normalise”.

"Our view is that the RBNZ will keep rates unchanged for the rest of 2014 to better assess the impact of the previous rate hikes on the economy, and that it is unlikely to hike rates before H2015."

EUR/AUD treading key daily support

EUR/AUD is trading at 1.4434, up 0.06% on the day, having posted a daily high at 1.4437 and low at 1.4423.
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