RBNZ likely less concerned about currency headwinds - BNPP

According to analysts at BNP Paribas, RBNZ is expected to remain on hold on Thursday as concerns about currency strength have likely reduced and sentiment towards the NZD remains bearish.

Key Quotes

“There is a light data calendar ahead Wednesday, so focus is likely to be on the RBNZ meeting during Asia hours on Thursday. The market continues to expect the RBNZ to remain on hold until late 2018, and it will be interesting to see how the tone of the statement has changed following the recent depreciation of the NZD.”

“At its last meeting, the RBNZ reiterated concerns about the strength of the NZD resulting in low tradables inflation creating a headwind for overall inflation. However, following the recent depreciation of the NZD, the currency is now down 6.2% y/y on a trade-weighted basis, which according to our estimates should increase headline inflation by 0.5pp – so currency strength is likely to be much less of a concern.” 

“Sentiment towards the NZD remains poor, with large short NZD positions continuing to be held according to BNP Paribas FX Positioning Analysis.  Future policy expectations may rest on whether New Zealand’s Labour-led coalition pushes ahead with plans to reform the RBNZ, shifting to a dual mandate, targeting both inflation and full employment. We note that New Zealand’s unemployment rate is already low at 4.6%, within the Treasury’s recent range of estimates of full employment, so the extent to which a dual mandate would push NZD lower may be limited.”