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NZD: Trading RBNZ - Views From 10 Major Banks

Nomura: RBNZ On Hold; Risk On NZD Pullback.

The 9 February Reserve Bank of New Zealand (RBNZ) meeting poses a short-term event risk for NZD. New Zealand’s economic fundamentals, higher commodity prices and positive global sentiment have supported NZD in early 2017. We expect this to remain the case over the medium term, but in the short term we see risk of a NZD pullback given the skew in market positioning, if the RBNZ leans against the current market pricing for the start of the tightening cycle. This is currently for late 2017, but we do not expect the first RBNZ rate hike until 2018.

UniCredit: RBNZ On Hold; Staying Flat On NZD For Now.

The RBNZ is set to follow the RBA and leave the OCR unchanged at 1.75%. Importantly, the latest labor data in New Zealand show that wage pressures remain subdued: in 4Q16 the unemployment rate unexpectedly rose to 5.2% against an expected fall to 4.8% (due to the participation rate rising to a record 70.5%). Coupled with the underutilization rate up to 12.8% from 12.2% previously, this suggests that wage growth in New Zealand will be able to be further absorbed without raising pressure on the RBNZ to start tightening soon. Indeed, the current forward curve also reflects only one 25bp rate hike on a 12M horizon and one full point on a 2Y time line, implying that the prospect of rate hikes by the RBNZ seems to be more a story of 2018 than of this year. That said, we think that prospects of higher commodity prices could further keep the NZD (and the rest of commodity FX) on a firm footing. The risk in the short term, however, is deterioration in risk appetite due to some flaring up of political concerns about France. This needs close monitoring as it would weigh on high-beta currencies such as the NZD. For now we would advise keeping exposure flat.

Deutsche Bank: Neutral Stance From RBNZ.

The RBNZ has good reasons to be sanguine ahead of today’s meeting. Inflation accelerated faster in Q4 than they forecast and early indicators suggest that headline inflation in Q1 could also beat. Moreover, inflation expectations have bounced back close to 2%. Still, the RBNZ will be cautious not to jinx it by shifting to a hawkish bias unnecessarily early, with the TWI already trading 5% above the November forecast. Specifically, it is unlikely for the OCR path in the MPS to be lifted materially. All things considered, a neutral stance seems appropriate for now and would come as no surprise to the market.

Credit Agricole: No Change From RBNZ. Limited Impact On NZD.

The RBNZ will decide on monetary policy this evening. In line with market expectations we expect the RBNZ to leave interest rates unchanged at 1.75%. Still, the central bank may be inclined to adjust its rate profile higher, especially when considering that growth proved more resilient on the back of higher dairy prices and strong tourism, migration and construction activity. If anything the latest development may suggest that slack is likely to be used up more quickly than assumed by the RBNZ. Inflation is now back near at the centre of the central bank’s target band and according to this week’s data inflation expectations continued to rise. The one thing in the RBNZ’s favour, in terms of limiting its impact on the currency, is that that rates market already anticipates the RBNZ raising rates once this year. As such any currency impact on the back of a more upbeat guidance is likely to prove limited.

ANZ: RBNZ To Remain In A Holding Pattern; Mixed Directional Signals For NZD.

Directional signals for the NZD remain mixed as conflicting global forces (reflation and prospects for a turn in the liquidity cycle) weigh, and the USD oscillates. The localised story remains very NZD-supportive and needs to be acknowledged. That said, we consider the interest rate market (and NZD) to be a little too aggressive in erring towards an OCR hike (with ~18bps priced in by September). We expect the RBNZ to remain in a holding pattern until the first half of 2018. Given two false starts to the tightening cycle, having inflation near its 2% target and merely projected to get there is insufficient; the whitesof-the-eyes of inflation need to turn up. Moreover, interest rates have already started to rise via the credit channel of monetary policy, which takes pressure off the RBNZ to follow suit. Tighter financial conditions flag a potential turn in New Zealand’s economic credentials.

BTMU: Scope For RBNZ To Disappoint This Week.

The RBNZ will likely maintain its current monetary stance and with the market yield curve priced for about 40bps of hikes by year-end, we see scope for disappointment that could see the New Zealand dollar reverse some of its recent gains. While the RBNZ’s concerns over too low inflation are now probably receding, we doubt they will rush to raise rates given the risks of a NZD overshoot

NAB: RBNZ Sight Easing Bias To Disappear This Week; AUD/NZD Range-Bound N-Term.

The higher inflation dynamic forms the backdrop to the RBNZ’s next Policy Statement on 9 February. The slight easing bias from November will surely disappear. The key question is whether the Bank is willing at this stage to move straight to a tightening bias. The market prices in a full hike by November and two more next year. This is at odds with the RBNZ’s November projection of a flat OCR profile for the next three years. The RBNZ could well be the next major central bank off the block in beginning a tightening cycle. The Fed’s tightening cycle is underway of course, but it doesn’t seem likely that the RBA, BoE, ECB or BoJ will be tightening policy ahead of the RBNZ. This view is consistent with the relative economic outlooks across the respective central bank domains. It’s another way of saying that NZ’s economic growth, relative to potential, remains on a relatively stronger footing than most other regions, a supportive factor for the NZD crosses. AUD/NZD has been range-bound, mainly within 1.0250- 1.0800 since mid-May. For some time we’ve maintained the view that the cross would remain range-bound and that remains the case for 2017. The 1.05 level is consistent with our medium-term model which puts emphasis on relative NZ-AU unemployment rates.

Wesptac: RBNZ On Hold, NZD/USD To Rise 0.25 cent On Outcome.

We expect the RBNZ to remain on hold at 1.75% at Thursday’s MPS, and to retain a neutral bias, which shouldn’t ruffle markets much. There’s a small risk of a hawkish shift. Our central scenario is defined by a broadly unchanged policy stance, although the OCR track would round up to 1.8% for the three years ahead instead of remaining rounded down to 1.7%. This outcome, which we give an 70% probability, would represent only a modest shift in a hawkish direction and thus elicit only a modest response from markets (2yr yield up 3bp, NZD/USD up 0.25 cent).

Barclays: RBNZ On Hold.

On RBNZ, with rising US rates and modest pace of inflation, we expect the bank to keep rates on hold (Thursday).

RBC: NZD To Feature At this RBNZ mmeeting; Look For Some Pullback.

NZD: The strength of the currency is likely to feature at this RBNZ meeting (Thur). Though trade-weighted NZD has pulled back a little from the late Jan high, it remains ~4% above the RBNZ’s forecast for the current quarter. Central bank jawboning on the currency is most effective when there are hikes to price out in the forward curve and OIS markets are priced for a ~40% chance of a hike by the September meeting. Coupled with the tendency for NZD to reverse direction in Feb/March, we look for NZD to retrace some of its early 2017 gains.

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#eFXNews NZD: Trading RBNZ - Views From 10 Major Banks

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