From the FXWW Chatroom:
|•||The RBNZ’s statement reinforces our view that the RBNZ will cut the OCR to 2.0% in August, then cut again to 1.75% in November.|
|•||The RBNZ strengthened its easing bias to further policy easing is likely.|
|•||More importantly, the RBNZ made very strong comments about the strength of the exchange rate and how it “makes it difficult for the Bank to meet its inflation objective”. The RBNZ explicitly stated a decline in the exchange rate is needed. This suggests the RBNZ has opened the door to OCR cuts below 2%, a move the RBNZ had previously indicated a very high threshold for doing so.|
|•||The RBNZ has previously been reluctant to cut interest rates further due to financial stability risks. This week’s proposed tightening of LVR restrictions helps them on this front.|
|•||The dovish statement from the RBNZ had an immediate impact on the NZD and interest rates, with NZD/USD down through 0.70 to a low of 0.6980 so far. The NZD/AUD likewise declined, down to 0.9360 vs 0.9395 pre-release. The 1-year swap rate dropped to 2.13% vs 2.16%, with the 5-year swap rate is also declining.|
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