NZD:
Shaken by Milk
The RBNZ
cut OCR by 25bps for the first time in 4 years, taking it down to 3.25% at its
MPC meeting today. Consensus was looking for RBNZ to keep rates on hold. We had
called for the RBNZ to cut the OCR by 25bps against a backdrop of checking all
of RBNZ’s criteria for future easing - inflation at 15-year low with a risk of
slipping into negative territories, low levels of dairy prices for longer,
benign wage inflation, and declining terms of trade.
RBNZ’s
accompanying statement was perceived as dovish on multiple fronts (demand side,
wage-and-price inflation) and validated our non-consensus bias for a rate cut
for this meeting. Statement also noted that the NZD remains overvalued, despite
its decline from recent peak in April. A significant downward adjustment is
justified. It also expects further easing, depending on data.
NZD is
expected to decline further. NZDUSD next objective at 0.6870, before 0.65
levels. Looking ahead we believe at least 1 more cut is on the table. Question
is how soon will it be. We are biased for the next cut to come as soon as its
next meeting – 23 Jul.
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