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RBNZ to cut this week or pre-announce a cut in August - Morgan Stanley

Morgan Stanley on the June 8 RBNZ decision

The RBNZ is skewed to cut: Inflation expectations have fallen to lows last seen in the 1990s and the NZD TWI is trading 4.8% above the RBNZ's September forecast. The RBNZ is one of a few central banks that can actually weaken its currency via rate cuts as it has a fairly steep yield curve and the highest starting monetary policy rate. We think the risks are high for a cut this week and if not now then pre-announcing a cut at the August meeting.

The main opposition comes from the fact that house prices are rising rapidly as a result of migration (6.5%Y nationally), which cutting rates could spur further, adding to household debt. We would expect macro-prudential policy to ease the financial stability risks, but what is more worrying to us is the continued negative cash flows in the dairy industry. Lower interest rates could help to ease the burden on this sector, so we reiterate our trade of the week: short NZDJPY.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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