RBNZ Cuts, RBA Looks on

As the RBNZ delivered its widely anticipated 25-bp rate cut to 2.00%, NZD made the “expected” jump, before settling lower following dovish comments from RBNZ governor Wheeler. Asserting its concern with sustainable decline in inflation and greater than expected moderation in wage growth, the RBNZ has explicitly opened the door for further easing in the coming months. As those statement failed to lower the value of the currency, Wheeler decided clear the air by stating “we want to see the currency fall” as the cat-&-mouse with the RBA continues with neither central bank want to see its currency rise appreciably.

Both central banks have frustratingly seen their currency rise appreciably due to: i) stabilisation in commodities and China market metrics; and 2) Fed keeping rates unchanged. A rate cut of at least 25-bps this year from of the two each central bank is a foregone conclusion in the event of no Fed hike this year, while the macro dynamics as well as market sentiment in China will be instrumental in gauging the moves from the RBA. Another reason the RBNZ has little choice but to cut some more is the planned macro-prudential measures set for September by the RBNZ, aimed at slowing speculative interest in the hot housing market. Such move would remove a crucial obstacle to interest rate cuts and will keep the RBA-RBNZ battle for the lowers well alive.

Ahead of this evening's RBNZ move, we issued a tactical NZD trade in addition to the AUDNZD existing long.