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NZD: Hopes dim for RBNZ rate cut action – Westpac

FXStreet (Delhi) – Imre Speizer, Senior Markets Strategist at Westpac, suggests that the market expectations for the OCR have risen modestly since the RBNZ’s September MPS, reflecting the less risk averse global climate, higher dairy prices, and Governor Wheeler’s hawkish shift in his speech last week.

Key Quotes

“OIS pricing currently implies only a 16% chance of a rate cut at the RBNZ’s 29 October meeting, with a cut not fully priced until March. Markets are assigning only a 20% chance of an OCR below 2.5%.”

“We would concur with the market regarding October, but give December higher odds. The OIS forward curve, shown across, exhibits an upward slope past mid -2016, implying a tightening later that year.”

“We believe the chance of that actually happening is very low, and if we are correct, markets will need to lower forward rates past mid -2016. Thus, there is scope for the 2yr swap rate to fall further. The market’s forward 3mth bank bill curve tells much the same story. It is even more dovish than the RBNZ’s latest 3mth bank bill forecast out to Sep 2016, but thereafter it is higher.”

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