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30 Nov 2015
NZD: December to be a close call for RBNZ as macros point towards slowing – Westpac
FXStreet (Delhi) – Imre Speizer, Senior Markets Strategist at Westpac, suggests that the RBNZ is facing an uphill battle and the markets have slightly decreased the chance the RBNZ will ease by 25bp on 10 December, from 56% last week to 48% currently.
Key Quotes
“A full cut is not priced until March 2016. We assess the chance of a December cut at around 60%. What could swing the odds of a cut one way or the other ahead of 10 December? There’s a dairy auction on 1 December (a price bounce, currently predicted by futures, would argue towards not cutting), and US payrolls on 27 November (a strong number would push the USD higher and argue towards not cutting).”
“Inflation has been below the RBNZ’s target band for a year now. And although the fall in the exchange rate since mid-2015 will result in some lift in prices, a sustained pick-up in inflation back to 2% still looks elusive. The main reason for this is that domestic growth is set to slow, which will result in continued downwards pressure on prices.”
“At just 0.4%, annual inflation is only slightly higher than the 15 year low it reached earlier this year. And this isn’t just a result of a few volatile items like petrol. Core inflation, which strips out such volatility, has lingered at low levels for several years now, and has only shown faint signs of picking up.”
“While there should be some pickup early 2016 as fuel prices drop out and the lower NZD is passed through, a slowing domestic economy will keep inflation low. The plateauing of the Canterbury rebuild, a softer housing market, drought and lower dairy prices should dampen domestic demand.”
Key Quotes
“A full cut is not priced until March 2016. We assess the chance of a December cut at around 60%. What could swing the odds of a cut one way or the other ahead of 10 December? There’s a dairy auction on 1 December (a price bounce, currently predicted by futures, would argue towards not cutting), and US payrolls on 27 November (a strong number would push the USD higher and argue towards not cutting).”
“Inflation has been below the RBNZ’s target band for a year now. And although the fall in the exchange rate since mid-2015 will result in some lift in prices, a sustained pick-up in inflation back to 2% still looks elusive. The main reason for this is that domestic growth is set to slow, which will result in continued downwards pressure on prices.”
“At just 0.4%, annual inflation is only slightly higher than the 15 year low it reached earlier this year. And this isn’t just a result of a few volatile items like petrol. Core inflation, which strips out such volatility, has lingered at low levels for several years now, and has only shown faint signs of picking up.”
“While there should be some pickup early 2016 as fuel prices drop out and the lower NZD is passed through, a slowing domestic economy will keep inflation low. The plateauing of the Canterbury rebuild, a softer housing market, drought and lower dairy prices should dampen domestic demand.”