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NZD: Explicitly linked to the OCR – Westpac

FXStreet (Delhi) - Imre Speizer, Senior Markets Strategist at Westpac, suggests that the NZ dollar will remain uncomfortably high come December, convincing the RBNZ that a December rate cut is required to bolster the inflation outlook.

Key Quotes

“Markets have priced in a 44% chance of the RBNZ cutting by 25bp in December, with 100% priced not until March 2016.”

“In the October OCR Review, the RBNZ retained its easing bias, saying “some further reduction in the OCR seems likely. It is appropriate at present to watch and wait.” We interpret the latter sentence as a subtle indication that the RBNZ is currently in pause mode, and has not precommitted to any particular timing of OCR reductions.”

“Listed were a number of swing factors it will be watching between now and December, including uncertainty about interest rates in the United States, whether the recent rebound in dairy prices would be sustained, developments in the Auckland housing market, and the exchange rate.”

“It was the comment on the exchange rate which particularly caught our eye. In a departure from recent statements, exchange rate developments were explicitly linked to interest rate decisions. The RBNZ said that if the NZ dollar sustained its recent rise “a lower interest rate path than otherwise” would be required.”

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