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NZD: RBNZ to sit tight this month- Westpac

FXStreet (Delhi) – Imre Speizer, Senior Markets Strategist at Westpac, suggests that the positive run of data recently, combined with rising global dairy prices, leaves us comfortable with our call that the RBNZ will leave the OCR on hold in October (currently, markets are pricing roughly a 25% chance of a cut, and roughly half of economists are calling a cut).

Key Quotes

“It was always going to take some form of data shock to force the RBNZ to cut in October. So far, no such shock has been forthcoming. Indeed, we have seen dairy prices rebound 63% since August, and migration and house prices remain strong.”

“Confidence in the economic outlook is low, but businesses’ own outlooks is flat. The final opportunity will come on Friday this week, when the September quarter CPI is released. We are bracing for yet another weak number, but that will be mainly due to one-off changes in government charges.”

“Our annual inflation forecast of 0.2% is in line with the RBNZ’s forecast, and would not be enough to tip the balance in favour of an October OCR cut. The NZ dollar is up sharply to almost 67c against the US dollar, although the rise on a trade weighted basis has been less marked. This will certainly weigh on the RBNZ’s mind. But our judgement is that even the higher exchange rate is not enough to outweigh the shock rise in dairy prices.”

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