RBNZ MONETARY POLICY STATEMENT - GBPNZD TACTICAL LONG (NZDUSD)

22 Eyl 2016

RBNZ not adding much new in their September statement, and imo, Gov Wheelers speech highlighting the issues with trying to control a ccy with the cash rate makes the persistent worries regarding kiwi/ nzd strength less of a dovish factor than it may appear. Nonetheless, the statement on the margin was neutral, with perhaps the pressure for a lower kiwi and inflation prints putting it on the dovish side.

Positioning wise, I am tactically long GBPNZD and EURNZD for another day or two (depending on closes - see attached).. this leaning dovish statement may ease these positions into the money but it isnt the key driver I was looking for but ill take any kiwi weakness we can get here. One onus on short kiwi is the tail off in US STIR which may see some more AUDNZD selling (kiwi buying) as USD rates become less attractive - although we have infact seen December fed funds trade flat on the day (though November did soften from 20 to 14%) so this yield seeking cross selling may be limited and under some sort of control for now which should enable these tactical kiwi shorts some running room.

RBNZ: MONETARY POLICY TO REMAIN ACCOMODATIVE

- A Decline In THE NZ$ Is Needed
- Further Easing Will Be Required
- Weak Global Growth And Low Rates Putting Upward Pressure On NZ$
- High NZ$ Makes It Difficult To Reach Inflation Target
- Further Declines In Inflation Expectations Still A Risk
- Domestic Growth Supported By Strong Migration, Tourism, Construction
- Strong Immigration Is Limiting Wages Pressure
- Watching Data Closely
- Volatility In Global Markets Has Increased
- House Price Inflation Remains Excessive, Macropru Having Moderating Influence
- Outlook For Global Growth, Commodity Prices Remains Uncertain
- Annual CPI Inflation Expected To Weaken In Sept Quarter

Full statement is here - rbnz.govt.nz/news/2016/09/official-cash-rate-unchanged-at-2-percent

WESTPAC ON THE RBNZ:

-This morning the RBNZ left the OCR unchanged at 2.00%, as was widely expected.
-Much of the language from the August Monetary Policy Statement was retained in today's release, most likely deliberately so. The last paragraph repeated that "further policy easing will be required to ensure that future inflation settles near the middle of the target range" (our emphasis - "will" is about as strong as the RBNZ's language gets).
-The statement acknowledged the economic developments since August, without altering its bottom-line assessment on inflation. Dairy prices have risen strongly, although there is still a great deal of uncertainty around the full season outcome; the NZ dollar has risen more than expected; strong GDP growth was broadly in line with expectations; and there are early signs that the latest round of lending restrictions is having a dampening effect on the housing market.
-The RBNZ again noted that annual inflation is expected to rise from the end of this year, as some temporary factors drop out. Nevertheless, the RBNZ still faces an uncomfortably slow return to the inflation target, with the risk that persistently low inflation leads to a further decline in wage and price expectations.
-In August the RBNZ was fairly explicit that its interest rate projections split the difference between one and two more OCR cuts in coming months, with the first cut most likely to be at the November MPS.
-We suspect that the RBNZ is still committed to at least the first of those rate cuts. Any change in the language of today's statement could have given the false impression that the RBNZ was wavering on further easing.