RBNZ: Governor Wheeler needs to deliver -50bps tonight - RBC CM

Elsa Lignos, Senior Currency Strategist at RBC Capital Markets, notes that the RBNZ announces its latest decision at the NY close (9am local time).

Key Quotes

“Our NZ economics team expects a 25bps cut to the OCR, taking it to 2%, although by now that is a unanimous call among analysts and OIS is fully priced for it. The brief economic update provided in late July left little doubt that easing would be delivered, consistent with the ongoing undershoot in inflation, weak wage growth, stubborn exchange rate, and recent announcement of further macro-prudential measures.

RBC’s baseline scenario is that this is the final cut of this cycle; our economists see a decent chance of further easing, but with markets priced for more than two full cuts by the November meeting and almost three cuts by May 2017, the risks to NZD are asymmetric.

In the current risk seeking environment, Governor Wheeler needs to deliver -50bps tonight or a strong commitment to further cuts, or else NZD is likely to rally again. The set of forecasts provided in the full quarterly Monetary Policy Statement will be important in refining the view.”