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29 Oct 2014
RBNZ: Guidance was a slightly dovish surprise - Westpac
FXStreet (Bali) - Westpac reviews the RBNZ monetary policy decision, noting that the guidance was a slightly dovish surprise to the FX and interest rate markets.
Key Quotes
"The RBNZ’s OCR Review this morning announced the OCR will remain unchanged at 3.50%, unanimously expected. However, the guidance was a slightly dovish surprise to the FX and interest rate markets."
"The key guidance paragraph at the bottom of the press release had one notable dovish change from September’s. The RBNZ completely omitted September’s explicit intention to tighten further (which then read “Nevertheless, we expect some further policy tightening will be necessary”.). This omission will further fuel the skeptics in the market who believe the RBNZ will not tighten any further."
"The previous warning about the high NZD exchange rate was repeated: “However, its current level remains unjustified and unsustainable and continues to constrain growth in the tradables sector. We expect a further significant depreciation.”
"In response to all of the above, NZD/USD fell from 0.7825 to 0.7770. We expect some stability around 0.7800, given its large FOMC-induced fall earlier, but during the days ahead it risks falling towards 0.7709 major support. AUD/NZD rose from 1.1245 to 1.1302, and after some consolidation could extend towards 1.1310 – the September high."
The NZ 2yr swap rate fell from 3.91% to 3.88%. The next major level of yield support is 3.80%. The 2-10yr swap curve has steepened from 51bp to 54bp, and there is no obvious resting place ahead of 60bp."
Key Quotes
"The RBNZ’s OCR Review this morning announced the OCR will remain unchanged at 3.50%, unanimously expected. However, the guidance was a slightly dovish surprise to the FX and interest rate markets."
"The key guidance paragraph at the bottom of the press release had one notable dovish change from September’s. The RBNZ completely omitted September’s explicit intention to tighten further (which then read “Nevertheless, we expect some further policy tightening will be necessary”.). This omission will further fuel the skeptics in the market who believe the RBNZ will not tighten any further."
"The previous warning about the high NZD exchange rate was repeated: “However, its current level remains unjustified and unsustainable and continues to constrain growth in the tradables sector. We expect a further significant depreciation.”
"In response to all of the above, NZD/USD fell from 0.7825 to 0.7770. We expect some stability around 0.7800, given its large FOMC-induced fall earlier, but during the days ahead it risks falling towards 0.7709 major support. AUD/NZD rose from 1.1245 to 1.1302, and after some consolidation could extend towards 1.1310 – the September high."
The NZ 2yr swap rate fell from 3.91% to 3.88%. The next major level of yield support is 3.80%. The 2-10yr swap curve has steepened from 51bp to 54bp, and there is no obvious resting place ahead of 60bp."