RBNZ Assesment of Economy
The much anticipated RBNZ statement has clearly signalled a change in forward guidance and drastically increased the odds of a rate cut in August. This policy move confirms what the market had anticipated and comes as little surprise.Accordingly, the NZDUSD has only moved 50 pips lower as the market reprices a higher probability for a November rate cut. Apparently, the RBNZ is looking to influence the currency lower with the Key Highlight in the statement. ” The high exchange rate is adding further pressure to the dairy and manufacturing sectors and, together with weak global inflation, is holding down tradable goods inflation.”
While the repricing of the short date NZD curve continues, given the predictability of the RBNZ policy shift amidst overwhelmingly pervasive bullish risk sentiment, there appears little appetite in the early APAC session to chase this move lower.
Likewise, the Australian Dollar tracked the Kiwi lower but rebounded off the initial gap to settle in close to pre RBNZ statement levels
The Australian dollar has been trading off its back foot overnight with only temporary support from the ongoing risk rally.While US equities were all up, aided by positive earnings, there was little momentum behind the gains, which may in part explain the fleeting support for the Aussie.
While the Australian dollar continues to probe below the .7475 level, the attempts have been half-hearted and shallow so far, but this may change. With expectations for another weak CPI print for Q2 simmering and while factoring in the Australian Dollar strength in Q2, which in itself would make a compelling argument for the RBA to cut rates, even if the domestic CPI surprises to the upside, the RBA may pull the trigger regardless. Indeed, one could argue the higher AUDUSD exchange rate is exerting the same local pressures as those expressed by the RBNZ.for the New Zealand economy.