Thoughts on RBNZ meeting next week from Credit Agricole:
The RBNZ monetary policy meeting on Wednesday (27 Jan) will be closely watched after Q4 CPI came in much weaker than expected. Quarterly CPI fell by 0.5% (-0.2% expected), leaving annual CPI of just 0.1%, markedly lower than the central bank's forecast of 0.4% and well below the RBNZ's 1-3% inflation target.
This, coupled with continued concerns about global growth and a further drop in oil prices since the last meeting suggests the Bank will maintain its easing bias this week, although the Bank are likely to hold off on further action until later this year. In the December MPR, the RBNZ indicated risks of a further rate cut in the second half of this year, this has been somewhat reflected in current market pricing.
The next MPR is not due until the March meeting, therefore we expect the market to scrutinise the Bank's rhetoric and look for clues of possible earlier monetary policy action. This suggests downside risks for NZD.
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