RBNZ to cut rates once more

A further rate cut from RBNZ would be data dependant. Inflation rose more or less as expected in Q2 but remains a long way off the RBNZ's target with a yoy rate of 0.3%. 

However, admittedly that would not constitute an acute reason to cut interest rates further. What is much more concerning are the developments on the commodity markets. 

"RBNZ might once again cut interest rates by 25bp to then 3.00% at today's meeting. It had signalled another rate step when it last lowered interest rates at the June meeting", says Commerzbank. 

Prices have continued to fall over the past few weeks, in particular milk prices which seemed to recover at the start of the year have now returned to their downward trend. As the dairy industry constitutes New Zealand's most important export sector (roughly 1/3 of merchandise exports) the RBNZ is likely to have every reason to look into the future less optimistically. 

As the market has already priced in today's rate step the reaction of NZD exchange rates to the step is likely to be limited. What is decisive is to what extent the RBNZ leaves the door open for a further rate step and whether it explicitly maintains its desire for a weaker NZD. 

"The currency had eased notably over the past few weeks not least due to the prospect of further monetary policy easing. The central bank is likely to be pleased with this development. However, to prevent a reversal of this trend it makes sense to at least maintain the fantasy of further rate cuts today", added Commerzbank.