No surprises

Westpac Institutional Bank Team Westpac Institutional Bank

The RBNZ keep the Official Cash Rate on hold last week, and we expect it will remain on hold for some time yet. Markets are pricing in a hike by mid-2018. However, we think that’s far too early.

OCR to stay on hold for some time

Last week’s Official Cash Rate review from the Reserve Bank didn’t deliver any surprises. As expected, the RBNZ kept the OCR on hold at the current record low of 1.75%. In addition, the bottom line of the press release was unchanged from the May Monetary Policy Statement, noting that “Monetary policy will remain accommodative for a considerable period.”

Developments since the RBNZ’s previous policy statement in May have been broadly neutral from a policy perspective. While we’ve had lower than expected house price inflation and GDP growth in early 2017, these surprises have been balanced against stronger outlooks for both export earnings and fiscal policy. As a result, the RBNZ’s assessment of overall economic conditions appears to have remained largely unchanged.

To generate the sustained rise in underlying inflation pressures that the RBNZ is targeting will require a protracted period of strong activity. And that will require ongoing support from low interest rates for some time yet. We expect that the OCR will remain on hold through to early 2019. While that’s not quite as long as the RBNZ assumed in their May forecasts (which showed rates on hold until the latter half of 2019), we don’t think this is a big difference. The key point is that we’re in for an extended period where the OCR remains very low.

Download The Full Weekly Commentary

Author

Westpac Institutional Bank Team

Westpac Institutional Bank

More from Westpac Institutional Bank Team

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.