30 Apr 2015
RBNZ affirmed conditional easing bias - Westpac
FXStreet (Bali) - The RBNZ did affirm the conditional easing bias laid out in last week’s speech in perhaps more emphatic fashion than expected, notes Imre Speizer, FX Strategist at Westpac.
Key Quotes
The RBNZ’s OCR Review this morning delivered no major surprises to the markets but did affirm the conditional easing bias laid out in last week’s speech in perhaps more emphatic fashion than expected.
As expected, it kept the OCR unchanged at 3.50%, maintained its on-hold stance, and repeated last week’s signal (via the Assistant Governor’s speech) that it may cut the OCR if certain conditions are met (declines in inflation expectations or domestic demand).
The crucial policy paragraph/s repeated the main elements from last week’s speech, the part in bold most market-worthy: “The timing of future adjustments in the OCR will depend on how inflationary pressures evolve in both the non-traded and traded sectors. It would be appropriate to lower the OCR if demand weakens, and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target…The Bank will continue to monitor and carefully assess the emerging flow of economic data..”
The previous warning about the high NZD exchange rate was repeated: “On a trade-weighted basis, the New Zealand dollar continues to be unjustifiably high and unsustainable in terms of New Zealand’s long-term economic fundamentals. The appreciation in the exchange rate, while our key export prices have been falling, is unwelcome.”
The swap market responded at the short end, the 2yr down 4bp to 3.50%, but the 10yr unmoved at 3.86%. We see scope for further bull-steepening during the days ahead, the 2-10yr swap curve targeting 40bp next (currently 36bp).
NZD/USD fell from 0.7685 to 0.7624, and looks destined for 0.7600 during the day ahead. AUD/NZD rose from 1.0420 to 1.0504, and appears destined for 1.0540 today.
Key Quotes
The RBNZ’s OCR Review this morning delivered no major surprises to the markets but did affirm the conditional easing bias laid out in last week’s speech in perhaps more emphatic fashion than expected.
As expected, it kept the OCR unchanged at 3.50%, maintained its on-hold stance, and repeated last week’s signal (via the Assistant Governor’s speech) that it may cut the OCR if certain conditions are met (declines in inflation expectations or domestic demand).
The crucial policy paragraph/s repeated the main elements from last week’s speech, the part in bold most market-worthy: “The timing of future adjustments in the OCR will depend on how inflationary pressures evolve in both the non-traded and traded sectors. It would be appropriate to lower the OCR if demand weakens, and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target…The Bank will continue to monitor and carefully assess the emerging flow of economic data..”
The previous warning about the high NZD exchange rate was repeated: “On a trade-weighted basis, the New Zealand dollar continues to be unjustifiably high and unsustainable in terms of New Zealand’s long-term economic fundamentals. The appreciation in the exchange rate, while our key export prices have been falling, is unwelcome.”
The swap market responded at the short end, the 2yr down 4bp to 3.50%, but the 10yr unmoved at 3.86%. We see scope for further bull-steepening during the days ahead, the 2-10yr swap curve targeting 40bp next (currently 36bp).
NZD/USD fell from 0.7685 to 0.7624, and looks destined for 0.7600 during the day ahead. AUD/NZD rose from 1.0420 to 1.0504, and appears destined for 1.0540 today.