Odds of a rate cut have gone up since overnight trading
- New Zealand 2 year inflation expectations 1.80% (prior 1.86%)
- Westpac change its RBNZ call for tomorrow - now forecast a rate cut
In case you're wondering what's weighing on the kiwi dollar today, it is the fact that the market is pricing in higher odds of a 25 bps rate cut for tomorrow.
The odds were ~60% yesterday but with poor inflation expectations data earlier, it has now increased to ~76% with Westpac also revising their call to a rate cut tomorrow.
As such, the kiwi is the weakest performing major currency on the day with NZD/USD easing from 0.6360 levels to 0.6333 currently.
Given such odds as per the above, a decision by the RBNZ to cut rates tomorrow may still precipitate some weakness in the kiwi but if they do not deliver, expect a significant reversal to the topside for the currency as traders price out the event.
That said, I reckon the RBNZ will deliver a rate cut tomorrow in fear of seeing the currency strengthening in the short-term to dampen the inflation/economic outlook further.
