NZD Policy Stimulus
11/03/10 07:17
The RBNZ left the OCR unchanged as expected at 2.5%
and reiterated the 'around the middle of 2010'
guidance for when the Bank expects to begin removing
policy stimulus. With the RBNZ Governor, Alan
Bollard, commenting that all options are open in
terms of rate hike sizes (they will 'wait and see'),
we continue to anticipate a June start to withdrawing
monetary policy stimulus. We continue to see June and
July 50bp hikes (taking the OCR to a more 'normal'
low), reverting to 25bp moves thereafter, taking the
OCR to 4.25% by year-end. AUDNZD jumped above 1.30 on
the back of the release but as our RBNZ call has not
changed.
The RBNZ has not been unduly swayed by the
weaker-than-expected data-flow, stating that the
'economy is recovering broadly as expected' and that
they estimate that the 'economy grew at a stronger
pace in the December and March quarters than in the
prior two quarters.' Conversely, while 'Trading
partner activity has recovered a little faster than
expected', this is balanced with 'risks around the
global outlook have Increased'. Furthermore, despite
'improved consumer confidence', households are still
cautious and business spending is weak despite 'much
improved confidence' i.e. the RBNZ is still not
entirely convinced that the optimistic
forward-looking indicators will fully translate into
the strength of spending that has historically been
the case. Nonetheless, the RBNZ forecasts real GDP
growth to reach 4.4% y/y by March 2011, well above
our above-consensus 3.6% y/y.
Interestingly, the words 'around the middle of 2010' were not used in the body of the MPS (but were in the December MPS) and only appeared in the Policy Assessment which was finalised yesterday (10 March) i.e. the Governor was keeping his options open to the last minute. The MPS itself only refers to an expectation to 'increase the OCR over the projection'. Finally, the RBNZ points out that 'higher bank funding costs' are a wedge that is expected to persist over the forecast horizon, thereby reducing the level of the OCR needed to achieve desired lending rates i.e. as we have discussed before, this factor suggests the 'neutral' rate is more like 4 1/2-5% rather than the previously estimated 6-6 1/2%.
Also of note, Merill Lynch FX team is calling for NZDUSD to .63 in 2010 and .54 by end of 2011.
Source: UBS, Merill Lynch, Bloomberg, Chris Lori
Forex Trading Training Analysis
Interestingly, the words 'around the middle of 2010' were not used in the body of the MPS (but were in the December MPS) and only appeared in the Policy Assessment which was finalised yesterday (10 March) i.e. the Governor was keeping his options open to the last minute. The MPS itself only refers to an expectation to 'increase the OCR over the projection'. Finally, the RBNZ points out that 'higher bank funding costs' are a wedge that is expected to persist over the forecast horizon, thereby reducing the level of the OCR needed to achieve desired lending rates i.e. as we have discussed before, this factor suggests the 'neutral' rate is more like 4 1/2-5% rather than the previously estimated 6-6 1/2%.
Also of note, Merill Lynch FX team is calling for NZDUSD to .63 in 2010 and .54 by end of 2011.
Source: UBS, Merill Lynch, Bloomberg, Chris Lori
Forex Trading Training Analysis