RBNZ Preview, bullish comments likely, possible buy opportunity

Feb 8, 2017

At 2000GMT the RBNZ will announce their rate decision, with unanimous expectation of rates to be held at record low 1.75%. I believe comments from the RBNZ will be mildly bullish for several reasons. Recent data out of New Zealand has been encouraging as CPI has returned to the RBNZ’s target (1-3%) with both Y/Y and Q/Q figures printing better than expected, and most recently Inflation Expectations hit a 2-year high. Elsewhere, GDP also came in higher than expected while the latest Exports, Imports and Trade Balance data all surpassed expectations. Recent comments from RBNZ Governor Wheeler suggests another cut is not likely after he stated the economy is performing relatively well. Conversely, RBNZ Deputy Governor McDermott said risks on rates are still to the downside and the central bank will cut rates more if needed. More recently, New Zealand Unemployment Rate printed worse than expected and rose to the highest level since May last year, although some would argue that this is not alarming as the Participation Rate rose to fresh record highs. Since a rate move is not likely, the accompanying statement will give clues on future monetary policy and should give you a view on where NZD is heading. Goldman Sachs and BNZ both see at least one hike this year and according to Capital Economics, markets are pricing in up to two hikes by for 2017.