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NZD: Lose- lose scenario, expect another rate cut by year-end from RBNZ - BNZ

FXStreet (Delhi) – Research Team at BNZ, expects the RBNZ to cut rates again by end year and have it pencilled in for October, but they ascribe a 50/50 probability of a cut at that particular meeting as the medium-term growth story of the Kiwi economy has not materially changed and the local growth is still slowing and US rates are still going up.

Key Quotes

“The RBNZ’s 25bps cut in September was no surprise. However, the Bank was slightly more assertive in its suggestion that further easing would follow.”

“NZD found a base in September, after August’s equity sell-off took it convincingly below 0.65. A reduction in broader market volatility, with the VIX down to 20% from 30% in August, was an important factor in this stabilisation. The recovery in dairy prices, which are now 48% off their lows, also contributed, and led to upward revisions to forecasts of Fonterra’s 2015/16 milk payout. The speculative investor community pared back its significant net short NZD position to nearly neutral.”

“NZD is in a lose-lose scenario: it falls if the Fed actually gets on with rate hikes, and it falls if the Fed fails to go because of China/EM worries, in which case risk sentiment will sour.”

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