Analysts at Westpac point out that markets have priced a 70% chance of an OCR cut by RBNZ in August, and 1.7 cuts by May 2020.

Key Quotes

“The main reason for that is not so much to do with local fundamental developments, but rather dovish offshore pricing for the Fed and RBA which is typically influential.”

“RBNZ and RBA pricing are closely related. Indeed, the spread between the two for pricing one year ahead is currently at 38bp – not too different from the 34bp average since November 2016 (when both the RBNZ and RBA began a long onhold period).”

“If markets price even more in for the RBA (two more cuts are currently priced, which we agree with), then OCR pricing should follow suit, albeit in a dampened fashion. At some point we would favour fading the NZ move, though, particularly if Q1 GDP data shapes up to be stronger than markets (and especially the RBNZ which has forecast 0.4%) expect.”

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