The RBNZ meets on Thursday, against a backdrop of softer data (employment and inflation) and a still-high NZD, but Tim Baker, Strategist at Deutsche Bank suggests that they don’t expect a dovish shift.
Key Quotes
“The RBNZ has recently expressed only mild concern with the NZD at current levels, and the softer data looks exaggerated. NZD still looks at risk vs EUR and USD given extended positioning. But the most interesting trade to us is NZD top-side vs the AUD, given the markedly different macro backdrops.”
“The AUD/NZD cross is already low relative to history, but we see it going lower. Notably, the apparent ‘cheapness’ disappears when we consider valuations on a DBeer basis, thanks to NZ’s superior terms of trade. Looked at more simply, dairy prices are high vs iron ore prices, with the ratio of the two pointing to AUD/NZD downside.”
“On the data side, Australia has continued to surprise positively, driving relative data surprises and the cross higher. But we see that fading in time as macro weakness becomes more obvious (noting today’s softer consumer sentiment in Australia – the weakest in G10). And even with NZ’s softer jobs data, if anything relative employment ratios point to AUD/NZD downside.”
“Further, Australia’s better jobs data matter little if it doesn’t get people spending. It’s notable that the gap in private spending growth (consumption plus capex) is historically large – sitting at 5% in NZ vs 1% in Australia. In fact, NZ is outperforming Australia by a decent margin on a very wide range of metrics. While the RBNZ sounds nothing like the hawkish BoC (which faces a similarly strong economy), they are still likely to move that way far before the RBA.”
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