From Westpac in NZ, a 'Scenario analysis' preview of the Reserve Bank of New Zealand meeting

Via Imre Speizer

(Bolding mine):

  • Only 4 of 18 surveyed economists are predicting a rate cut
  • Remainder expecting on hold
  • Market pricing agrees, a 16% chance of a cut priced in

Three possible scenarios:

(a) Neutral from the market's viewpoint (70% chance) - on hold at 2.75% but signalling further easing is likely

  • easing bias will be watered down slightly
  • Net positive developments since September (housing & dairy up, but exchange rate stronger)
  • Policy sentence would read something like: "Some further easing in the OCR seems likely but this will continue to depend on the emerging flow of economic data"
  • In response ... NZD/USD would rise by around 1/4 cent.

(b) Hawkish (20% chance) - on hold at 2.75% & significantly downgrading the easing bias

  • "Some further easing in the OCR is possible but...."
  • NZD/USD would rise by around 1 cent.

(c) Dovish (10% chance) - a 25bp cut, and retaining the easing bias

  • Unlikely because Wheeler's speech on 14 October was hawkish, focusing on the strong housing market... NZD/USD would fall by 1 cent

We assess speculative positioning in both the NZD rates and fx markets as roughly neutral.