Analysts at TD Securities noted that the RBNZ again left the official cash rate (OCR) at its record low of 1.75% as widely anticipated - The OCR was last adjusted by -25bp to 1.75% in November 2016.

Key Quotes:

  • There were a few changes made to the statement but the takeaway message is that the RBNZ is likely to keep the cash rate on hold for longer. The Bank indicated that conditions required "supportive monetary policy for sometime to come" and that rates will be "at an expansionary level for a considerable period".
  • Today's statement highlighted the growing downside risks to the domestic AND global economies. On the domestic economy the Bank noted "the recent weaker GDP outturn implies marginally more spare capacity in the economy than we anticipated". The RBNZ also indicated "The Government's spending impulse is also slightly lower and later than anticipated".
  • On the global front, the Bank acknowledged "the outlook has been tempered slightly by trade tensions in some major economies".
  • As this is an OCR Review, there were no updated forecasts and no press conference. These are scheduled with the RBNZ Monetary Policy Statement, on August 9.
  • The exchange rate at $US0.6796 was little changed on today's release. The TWI at 72.9 is hovering in the bottom half of this year's 72.5-76 range, and below the RBNZ's May projections of 74.1 for Q2 and 74 for Q3. In rates space, we have seen a mild offered tone, swap yields 2bps lower.
  • The OIS strip mimics the "some time to come" stance, flat at 1.75% with a May'19 hike assigned less than a 20% probability.
  • As much as we remain of the view that the macro economy is on a stronger footing than the Bank is prepared to admit, we take the opportunity to push out our first RBNZ +25bp hike from February 2019 to May 2019. We leave +25bp for November for an end-2019 OCR of 2.25%.
  • From a rates strategy perspective, we think the risk is for the RBNZ to remain on hold for longer than the new house view. The 3m roll down across most tenors and forwards is roughly 6bps over 3 months, which is relatively attractive. As a result we expect an offered tone to persist.
  • For NZD it appears the statement of intent offered most of the fireworks. Today's statement offered little new for the FX market to nibble on. Still, the reference that the language about the strength of the currency has resonated with markets, leaving NZDUSD to take out the lower-end of its recent range. A close below the 0.68 level should reinforce the downside momentum, opening a possible new range towards 0.64. We also note that our gauge of high-frequency fair value (HFFV) sits at 0.675, indicating that the NZDUSD looks a bit rich. That comes despite the recent decline, which argues it has more room to push lower in the very short-run. We look for a 0.65 to a 0.68 range over the next month.

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