11 Dec 2013
Flash: RBNZ scenarios for Thursday - Westpac
FXstreet.com (Bali) - In Thursday's Monetary Policy Statement (MPS), Imre Speizer, FX Strategist at Westpac, expects the RBNZ to repeat last month's message that rates are going up, but the first hike will not come until April.
Key Quotes
"It will acknowledge that the economy is stronger, but the exchange rate is higher than previously anticipated. If our expectations prove correct, markets will be disappointed - there is 9bp of tightening priced in for the January meeting."
"Our central scenario (to which we assign a 60% chance) sees the RBNZ reflecting the stronger economy and higher exchange rate roughly offset each other. Its 90-day interest rate forecast would be similar to September’s, perhaps slightly higher at the long end."
"The crucial policy sentence would read something like: "OCR increases will likely be required next year. The extent and timing of the rise in the policy rate will depend on the degree to which the momentum in the housing market and construction sector spills over into broader demand and inflation pressures, and on the evolution of the exchange rate.""
"Markets would be disappointed because there is no signal a hike is imminent. Thus, January OIS pricing would tend towards 2.50% and front bank bill futures would rally, but longer date yields would rise due to the elevated track. That’s NZD/USD neutral."
"A dovish scenario (20% chance) would emphasize the high exchange rate and the unknown effect on house prices from the new lending restrictions. 2yr swap rates would fall 10bp."
"A hawkish scenario (20% chance) would emphasize the stronger economy, higher export prices, and increasing inflation expectations, and signal a hike in January. 2yr swap rates would rise 10bp."
"OIS pricing currently implies an OCR of 2.59% by January’s meeting, 2.77% by March 2014, 2.95% by April 2014, and 3.68% by December 2014."
Key Quotes
"It will acknowledge that the economy is stronger, but the exchange rate is higher than previously anticipated. If our expectations prove correct, markets will be disappointed - there is 9bp of tightening priced in for the January meeting."
"Our central scenario (to which we assign a 60% chance) sees the RBNZ reflecting the stronger economy and higher exchange rate roughly offset each other. Its 90-day interest rate forecast would be similar to September’s, perhaps slightly higher at the long end."
"The crucial policy sentence would read something like: "OCR increases will likely be required next year. The extent and timing of the rise in the policy rate will depend on the degree to which the momentum in the housing market and construction sector spills over into broader demand and inflation pressures, and on the evolution of the exchange rate.""
"Markets would be disappointed because there is no signal a hike is imminent. Thus, January OIS pricing would tend towards 2.50% and front bank bill futures would rally, but longer date yields would rise due to the elevated track. That’s NZD/USD neutral."
"A dovish scenario (20% chance) would emphasize the high exchange rate and the unknown effect on house prices from the new lending restrictions. 2yr swap rates would fall 10bp."
"A hawkish scenario (20% chance) would emphasize the stronger economy, higher export prices, and increasing inflation expectations, and signal a hike in January. 2yr swap rates would rise 10bp."
"OIS pricing currently implies an OCR of 2.59% by January’s meeting, 2.77% by March 2014, 2.95% by April 2014, and 3.68% by December 2014."