In a scheduled "Economic Update" published on Thursday, the RBNZ signalled a significant strengthening in its easing bias, and dovish shift across its views on domestic and domestic/global growth. At the heart of many of these changes is renewed concern about the elevated NZD. In our view, these changes make clear that the RBNZ is positioning for a deeper easing cycle, notwithstanding ongoing risks to financial stability from rising house prices.
- 3 Month: 0.68
- 6 Month: 0.64
- 12 Month 0.62
This is largely inline with my previous posts/ reaffirms my short view of NZD$ - especially with the possibility of 50bps of cuts increasing for this year ( GS citing two cuts); Plus I also see increased USD strength over the medium term as rate hike expectations/ implied probabilities ever grow - Fed Funds Opt Implied probs now trade at 19.5% for Sept, 20.8% Nove and 40% for Dec , up from yesterday at 18.8, 20 an 39.8 - the firsk-on bias already started today will likely see these probabilities continue to strengthen until the end of the day.
The Probability of 2 hikes this year is also becoming an ever stronger possibility with 2 hikes pricing at 7.5% in Dec - and with July Pricing a hike for the first time since Brexit at 2.4%