RBNZ Smashes the Doves – TDS
Research Team at TDS, notes that the RBNZ decision implies 2% OCR floor
still in place while there are more headaches for long AUDNZD holders.
Key Quotes
“The
RBNZ left the cash rate at 2.25% today, in line with the TD view but
defying 3/16 analysts looking for a -25bp cut to 2% and OIS shifting to a
near 50/50 risk of a cut after yesterday’s very weak Australian
inflation report.
Another disappointment for the markets was the
absence of more aggressive jawboning of the exchange rate. We needed to
see a reintroduction of something along the lines of “a higher exchange
rate could imply a lower cash rate path than previously expected” to
accompany today’s pause at 2.25% to take some steam out of the NZD.
Unfortunately, the choice of “A lower New Zealand dollar is desirable to
boost tradables inflation and assist the tradables sector” hit the
markets like a limp lettuce and the NZD jumped a cent higher to
$US0.6940. We recommend fading this move since the cash rate will be
lower in due course.
Our base case is unchanged, a 25bp cut in
June to 2%, accompanied by updated GDP and CPI forecasts. However, given
outsized event risk in June (potential FOMC hike/disappointment, EU
referendum) there is an increasing tail risk of even further delay into
August (new timetable). Early OIS re-pricing is 60% priced for 2% for
June. We’ll leave the OCR at 2% until year end and into mid-2017 as our
base case for now.”
