BNZ Weekly Overview – Tony Alexander
|Welcome to the October 30 2014 BNZ Weekly Overview, attached.
The Reserve Bank this morning removed any reference to additional monetary policy tightening in their six weekly review of the official cash rate. Taking into account the effects of the LVR rules, 1% cash rate rise so far, worsening world growth outlook, lack of wages pressure and falling petrol prices they have said they will now undertake a period of assessment before deciding what to do next. While we still think further rate rises may at a pinch be needed they won’t come before December next year, might not come until 2016, and might not come at all. This is good news for borrowers and exporters to some degree as there may be no additional interest rate support for the NZD this cycle. My how things have changed in such a short period of time! Were I borrowing at the moment I wouldn’t have much of my mortgage floating as I can get a rate almost 1% lower by fixing at our three year special of 5.85%. Pressure for fixed rates is generally downward currently so as noted some weeks back I would take my time and see what good discount I might be able to get once this special runs out.
OCR left unchanged at 3.5pc
Reserve Bank governor Graeme Wheeler kept the official cash rate at 3.5 percent, and toned down the prospect of higher interest rates as inflation remains unexpectedly low. The New Zealand dollar fell.
“CPI (consumers price index) inflation is currently at a low level despite above-trend growth. However, inflation is expected to increase as the expansion continues,” Wheeler said in a statement. “A period of assessment remains appropriate before considering further policy adjustment.”
Westpac NZ Research (NZ FX & IR Outlook)
|NZ FX & IR Outlook……Imre Speizer|
NZD/USD’s near term momentum remains positive and could rise towards 0.8035 this week. Multi-month, though, we expect the 0.7709 low to be revisited.
NZD/USD Outlook: Neutral this week
Near term momentum remains positive and could rise towards 0.8035 this week. Multi-month, though, we expect the 0.7709 low to be revisited.
The main factor behind near-term NZD/USD strength has been US dollar weakness, and this could persist for the next few weeks. That is because according to our measure of sentiment towards US economic data, a period of disappointments is now likely (Chart 3). At the same time, near term momentum in the NZ economy, which has been very weak recently, is poised to bounce (Chart 2).
Longer term, though, we remain negative NZD/USD, targeting sub-0.77 by early 2015. NZ inflation is currently at the bottom of the RBNZ’s 1%-3% target band, and will probably remain below the 2.0% mid-point until Q3 2015. That will keep the RBNZ on hold until late 2015, weakening interest rate support for the NZD. In addition, the Fed’s eventual tightening cycle will cause US interest rates to rise, benefitting the USD.
Event Risk This Week: RBNZ, FOMC
The NZ data calendar’s key event will be Thursday’s RBNZ meeting – an OCR Review resulting in a one-page press release only. Given last week’s large downside surprise to the RBNZ from Q3 CPI we expect a further dovish shift compared to the September meeting, signalling it’s on hold until evidence of inflation appears. Data releases shouldn’t cause market ripples: business confidence (Wed) and building permits (Fri).
The US data calendar is highly consequential, headlined by the 29 Oct FOMC and advance Q3 GDP.The heavy data schedule also includes Q3 employment cost index, pending home sales, durable goods orders, the Richmond and Chicago business surveys and the Michigan and Conference Board consumer surveys.
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