Halister News

(Bloomberg) -- With markets pricing in a 100% chance of an RBNZ rate cut Thursday, the central bank will need strong words as well as easing if it’s to send the buoyant kiwi sustainably lower, according to Bloomberg strategist Michael G. Wilson.

• All surveyed economists expect a 25 bp reduction, Bloomberg survey shows; the last time they unanimously forecast easing was in Sept. 2015
• The RBNZ signaled further cuts in a July 21 statement and said the kiwi was too strong; the currency has since shrugged off that warning and is up more than 2% vs dollar; on a TWI basis, it’s almost 10% above RBNZ’s forecast
• “In and of itself, an OCR cut this week is incidental; the real issue is what RBNZ flags for policy thereafter,” ANZ Bank New Zealand said in Aug. 8 note
• Steps the RBNZ could take to push the kiwi below its 100-DMA include:
  • Lowering the 90-day bank bill track further; RBNZ’s current forecast is for it to fall to 2.1% by mid-2017
  • Signaling more easing and lower rates for longer; Bank of New Zealand on Monday forecast 75 bps of easing by year-end, and over 60 bps of cuts are priced in through mid-2017 in overnight index swaps
  • Cutting the benchmark rate by 50 bps instead of a standard 25; swaps market gives this outcome just a 15% chance, but that’s up from zero a week ago
• If the RBNZ comes out surprisingly dovish, it could wrong- foot leveraged funds; they hold a near-record long position on the kiwi, the latest CFTC data shows
• Rate decision is due at 9am Wellington time on Thursday, followed by Gov. Wheeler’s press conference at 10am and his parliamentary testimony at 1:10pm