NZ: Risk that the market reduces pricing of RBNZ rate cuts - BNZ

Kymberly Martin, Senior Market Strategist at BNZ, sees the risk that the market reduces pricing of RBNZ rate cuts, in the near-term.

Key Quotes 

“Key to this view is our expectation for a bumper Q2 GDP number next Thursday. We look for a 1.0% s.a. q/q% print, with upside risk.

Early tomorrow morning we also look for another solid GDT dairy auction, which will reduce market concerns for this struggling component of the NZ economy. Finally, we expect the RBNZ to remain on hold at its 22 September meeting. While this will not surprise most, it will prompt some re-pricing by the market that assigns slightly more than a 10% probability to a cut at the meeting.

But if short-end yields push higher, we would see this as setting up a better receiving opportunity ahead of the release of NZ Q3 CPI on 18 October. Our current forecast is for just -0.1%q/q. It will likely remind the market that although NZ growth indicators are sound, the economy is failing to produce inflation. If the RBNZ remains committed, as it appears, to trying to soon return CPI inflation to target (2%), it will have little choice but to keep cutting the OCR. Our core view remains for the RBNZ to cut in November and February, taking the OCR to a cyclical trough of 1.50%.”