Biding time
We once again come to a Reserve Bank of NZ decision on the cash rate. Surprise is the only certainty with market pricing implying odds just over 50/50 of a rate cut. The RBNZ signaled in June that “we are now likely to be in a position to lower the OCR later this year” but it was probably the December quarter they had in mind, not the very next month. We learnt last week that inflation was higher than expected at 4.0% and most signs indicate that it will be even higher in the year to September (released October). It may well be that NZ is in recession but the RBNZ cannot be confident yet that an inflation spiral has been been avoided – my pick is that wait until September at least. This suggests some NZD firmness near-term.
The other key event this week is the Australian CPI release Wednesday. There the inflation rate is expected to hit 4.3%. The RBA too is worried about an inflation momentum developing. But the RBA Governor last week implicitly played down the prospect of another RBA rate hike in the next month or two, so a figure no worse than expectations could see the AUD drift lower near-term.
Add in the possibility of a firmer USD near-term following the recent drop in oil prices and rise in US share prices and the mixed forces are likely to show as a NZD/AUD working its way back up toward 80c, holding its own for now against the USD and firming against other currencies. In other words, biding time until the next wave of NZD selling.
