RBNZ: No more easing? - Rabobank

Jane Foley, senior FX strategist at Rabobank, points out that the RBNZ was the first G10 central bank to cut rates this year and the tone of the comments from Assistant Governor Hawkesby overnight suggest that this move may have been of the ‘one and done variety’. 

Key Quotes

“Given that New Zealand is exposed to headwinds from the global economy and that domestic inflation prices are benign, we continue to see risk that the RBNZ could cut rates again this cycle.  We remain bearish on the outlook for NZD/USD and look for a move towards 0.63 on a 12 month view.”

“The increase in China/US trade tensions, the slowdown in world growth and factors such as the latest New Zealand budget will all impact NZD growth, inflation and the relative value of the NZD.  A significant proportion of these risks are China centric.”

“In cutting rates last month the RBNZ referred to the slowdown in global growth and the resultant easing in demand for New Zealand’s goods and services. Additionally Governor Orr referred to the slowdown in domestic growth from H2 2018 with reduced immigration and the drop in house prices inflation resulting in lower household spending.”

“Since the start of this month the value of NZD/USD has risen by around 2.4% to levels above those maintained just ahead of the May 08 rate cut. The better tone of the NZD is largely on the back of the hawkish remarks from Hawkesby, though heightened speculation of Fed rate cuts has weakened the USD in recent sessions.”

“If maintained the stronger NZD will represent a tightening of monetary conditions and could increase the chances of more dovish rhetoric from the RBNZ at the June 26 policy meeting, if not before.”