14 Apr 2014
Market almost fully priced RBNZ's tightening cycle - Westpac
FXStreet (Bali) - The market has almost fully priced the RBNZ's projected tightening cycle, notes Imre Speizer, FX Strategist at Westpac.
Key Quotes
"Major risks to this cycle are the exchange rate, house prices, and export pricesFor example, if the NZD appreciated further, the OCR track would fall and push market swap rates lower and steepen the curve."
"The RBNZ increased the OCR by 25bp to 2.75% in March and projected it will increase it further to at least 5.0% by 2017. Over 2014 it expects to take the OCR to either 3.5% or 3.75%."
"Westpac’s own forecasts are not dissimilar to the RBNZ’s. We expect consecutive hikes in April, June and July, followed by a pause and then a resumption in December. We expect the terminal OCR rate to be 5.5% by December 2016."
"These projections have been almost fully priced into market swap rates such that there is little to be gained by paying or receiving swap rates if the projections prove correct. As a result, market participants have started to focus more on the risks to the RBNZ’s projections."
"With that in mind, we explore what we consider to be the main risks, and attempt to provide a sense of the magnitude of impact on swap rates should the risks be realised."
"We consider the main risks to the RBNZ’s projections to be the exchange rate, the housing market, and export prices."
Key Quotes
"Major risks to this cycle are the exchange rate, house prices, and export pricesFor example, if the NZD appreciated further, the OCR track would fall and push market swap rates lower and steepen the curve."
"The RBNZ increased the OCR by 25bp to 2.75% in March and projected it will increase it further to at least 5.0% by 2017. Over 2014 it expects to take the OCR to either 3.5% or 3.75%."
"Westpac’s own forecasts are not dissimilar to the RBNZ’s. We expect consecutive hikes in April, June and July, followed by a pause and then a resumption in December. We expect the terminal OCR rate to be 5.5% by December 2016."
"These projections have been almost fully priced into market swap rates such that there is little to be gained by paying or receiving swap rates if the projections prove correct. As a result, market participants have started to focus more on the risks to the RBNZ’s projections."
"With that in mind, we explore what we consider to be the main risks, and attempt to provide a sense of the magnitude of impact on swap rates should the risks be realised."
"We consider the main risks to the RBNZ’s projections to be the exchange rate, the housing market, and export prices."