Imre Speizer, FX Strategist at Westpac, expects the RBNZ to shift from a tightening bias to a neutral one, adding that markets are already well ahead of the game and unlikely to be moved.
Key Quotes
"We expect the RBNZ to shift from an explicit tightening bias to a neutral one. The press release will say it is appropriate to leave the OCR on hold. We assign an 75% probability to this scenario, to which markets are unlikely to react (Table 1). That is because markets have consistently been more dovish than the RBNZ during this tightening cycle and are now pricing in half a 25bp rate cut (Table 2). A neutral bias won’t be enough of a signal for markets to price in more easing, nor is it hawkish enough to disappoint."
"Our dovish scenario, to which we assign a 5% probability, is defined by a large dovish shift by the RBNZ, implying easing could occur if circumstances required. This would effectively give the market the green light to price in multiple rate cuts. The 2yr would be 15bp lower once the dust had settled later in the day."
"Our hawkish scenario, to which we assign a 20% probability, is defined by the retention of the explicit tightening bias expressed in the RBNZ’s last press release December. The 2yr swap would rise by only 7bp in response because, while there would be some stop-lossing, markets would remain skeptical. Fresh receivers would enter on the bounce. OIS pricing currently implies around zero chance of an OCR move tomorrow, a 16% chance of a 25bp cut in March, and a 48% chance of a cut by October. There are no full hikes priced in before 2025."
Key Quotes
"We expect the RBNZ to shift from an explicit tightening bias to a neutral one. The press release will say it is appropriate to leave the OCR on hold. We assign an 75% probability to this scenario, to which markets are unlikely to react (Table 1). That is because markets have consistently been more dovish than the RBNZ during this tightening cycle and are now pricing in half a 25bp rate cut (Table 2). A neutral bias won’t be enough of a signal for markets to price in more easing, nor is it hawkish enough to disappoint."
"Our dovish scenario, to which we assign a 5% probability, is defined by a large dovish shift by the RBNZ, implying easing could occur if circumstances required. This would effectively give the market the green light to price in multiple rate cuts. The 2yr would be 15bp lower once the dust had settled later in the day."
"Our hawkish scenario, to which we assign a 20% probability, is defined by the retention of the explicit tightening bias expressed in the RBNZ’s last press release December. The 2yr swap would rise by only 7bp in response because, while there would be some stop-lossing, markets would remain skeptical. Fresh receivers would enter on the bounce. OIS pricing currently implies around zero chance of an OCR move tomorrow, a 16% chance of a 25bp cut in March, and a 48% chance of a cut by October. There are no full hikes priced in before 2025."
