Analysis to open the week from ASB in New Zealand on their outlook for the Reserve Bank of New Zealand
- We now grudgingly accept the RBNZ will not cut the OCR in October
- Still believe the weak inflation outlook does warrant lower interest rates now, and expect the stubbornly-high NZD may force the RBNZ's hand come December
- RBNZ wants to keep its powder dry in case the global outlook deteriorates markedly over the coming year
On the New Zealand dollar:
- The recent rally in the NZD threatens to undermine the RBNZ's assumption that tradable inflation (largely imported retail items) is about to lift sharply ... bounce gives a new window of opportunity for importers to lock in some hedging for those that missed out
- RBNZ still believes that Fed hikes will lift the USD ... But the odds are the Fed delays its rate hikes and even scales back its forecast for how much it could lift interest rates
- The focus on the Federal Reserve influence overlooks the fact that the NZD is up against most its key exchange rates. Only a return of offshore market jitters, RBNZ rate cuts or declines in commodity prices can reverse the broader NZD rebound
- Dairy prices have bounced off lows and reports of low dairy collections will only reinforce the dairy markets conviction of a sharp fall in NZ production this year
(Boldings are mine)
