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RBNZ doesn’t really seem to have eased their economy by reducing 25 bps OCR in last month end or it may take time to factor in this monetary policy decision.
We suspect their monetary policy cushioning
Advanced GDP (QoQ) flashes have reduced from previous 1.4% to 0.5%.
The unemployment claims have increased from 248K to 257K, and unemployment rate has increased from previous quarter 5.4% to the current 5.7%
While to indicate the Kiwis economic health, ISM manufacturing PMIs have reduced from previous 51.8 to the current 50.8 levels.
GDT price index (Change in the average price of dairy products sold at auction) which is Kiwis major industry to contribute to their GDP has also reduced from previous 3.8% to the current -1.4%.
Three months ahead we see markets pricing in further RBNZ easing (below 2.0%), and also pricing a greater chance of US Fed rate hikes. The NZ-US interest rate outlook thus argues for a lower NZD/USD, towards 0.6500.
The outlook for NZ swap yields for next 1-3 month is still slightly lower. Although markets have fully priced in a 2.0% OCR, they are aware the risks for the RBNZ are mainly to the downside and see potential for the OCR to fall below 2.0% if global shocks materialise.
The 2yr should drift towards 2.20%, while the 10yr will be driven more by Fed behaviour and should trade around 3.00%. The curve should steepen.
