NZD weakens ahead of RBNZ rate decision – BBH

New Zealand Dollar (NZD) is trading heavy ahead of the RBNZ policy rate decision. The RBNZ is expected to trim the Official Cash Rate (OCR) by 25bps to 2.25%. At its last October 8 meeting, the RBNZ slashed the OCR by 50bps to 2.50% and stressed it ‘remains open to further reductions in the OCR’. Markets more than fully price-in a 25bps cut this week and about 50% probability of a final 25bps cut in the next six months to 2.00%, BBH FX analysts report.

Focus on RBNZ’s updated forecast and policy guidance

“The focus will be on the RBNZ’s updated OCR forecast. In its August Monetary Policy Statement, the RBNZ projected the OCR to bottom at 2.50%. Our base case is the RBNZ signals the OCR will be kept at 2.25% after this week’s cut. That would be a hawkish move and underpin a modest NZD recovery.”

“New Zealand Q3 employment and inflation are tracking the RBNZ’s August projection, while the October ANZ business outlook survey suggests green shoots are emerging. Moreover, outgoing RBNZ Governor Christian Hawkesby may want to leave policy option flexibility to new Governor Anna Breman ahead of her December 1 start.”

“Nevertheless, the risk is the RBNZ trims its OCR forecast closer to the lower bound of its estimated neutral range (1.60%-4.20%). New Zealand underlying inflation and 2-year inflation expectations are stable within the RBNZ’s 1 to 3% target range.”