RBNZ: Probability of a rate cut may have increased - Rabobank

Jane Foley, senior FX strategist at Rabobank, suggests that after the RBNZ marked itself out as one of the most dovish central banks in the G10 in 2018, the probability that the next move in RBNZ policy could be a rate cut, may have increased. 

Key Quotes

“We retain a bearish view on the outcome for NZD/USD and see scope for a move towards 0.63 on a 12 mth view.”

“There has been a clear shift in the perceived risks to growth both in China and the US.  While China is reacting by stepping up stimulus and the US by lowering the likely pace of monetary tightening, there is risk that a small economy such as New Zealand could be caught in the cross fire due to its strong trade links with China.”

“The government are clearly making an effort to diversify trading partners to mitigate the impact of a slowdown in demand from China from a more protectionist US and from Brexit.  Currently, any impact from the slowdown in Chinese growth on New Zealand exports has been limited by the strength of demand for dairy exports.”

“In Q3 economic growth in New Zealand unexpectedly dropped to its slowest pace in almost 5 years at 0.3% q/q, sparking speculation that the RBNZ could be biased towards a rate cut later this year.  This week’s news of plunge in credit and debit card spending in December suggests that GDP growth in Q4 may have also been weak.  In addition REINZ data is highlighting slumping house sales.  December data shows national house sales the lowest for 7 years and Auckland sales the lowest for 10 years.  Currently the RBNZ and the RBA appear to be the only G10 central banks which could be positioned to cut rates this year.  We expect both the NZD and the AUD to remain on the back foot vs. the USD.”