I’m bearish on the global economy and I would wager that most of our readers are as well.
Today’s bounce in risk sentiment has boosted risk trades but in percentage terms, the New Zealand dollar has been the laggard. That tells me that it’s weaker than AUD and CAD and it’s best to sell the laggard, especially for those who anticipate a slowdown in global growth.
NZD/USD has also fallen below the recent lows that AUD and CAD have held.
Housing was cited as a source of strength in the June decision but building permits tumbled 7.1% in the latest data. Q2 inflation was also lower at 0.3% vs 0.5% expected and Europe has deteriorated. On the other hand, trade was strong and Chinese stimulus should help the region.
The market is pricing in just an 8% chance of a cut today but a cut is nearly fully priced in at, or before, the Oct 25 meeting. That creates a stick situation because Gov Bollard is ending his term on Sept. 25 and incoming Gov Wheeler won’t want his first move to be a cut.
Most analysts expect a neutral statement but to me, the set-up points to an increased risk of dovish rhetoric, which will weigh on NZD.
Even if the RBNZ maintains its current stance, slowing global growth could push NZD/USD to 0.7500 in the near-term.
The decision is out in just over an hour at 5 p.m. ET.
