Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


RBNZ face challenging decision on Thursday

RBNZ face challenging decision on Thursday

By Garry Dean (Sales Trader, CMC Markets New Zealand)
10 June 2014

The key focus for the New Zealand dollar will be the Reserve Bank on Thursday morning, with the market widely expecting the OCR to be increased 25 points to 3.25%. The variance among market forecasters sits around the revisions contained within the June Monetary Policy Statement, and more importantly the projected trail of OCR increases going forward. While Governor Wheeler’s forecasts in March suggested an OCR at 4.50% by the end of 2015, the market has digested a number of weaker economic releases over the past three months, and are currently pricing-in a rate closer to 4.00% at this time.

This expectation of more moderate OCR increases has led major trading banks to reduce two year fixed mortgage rates by over a quarter of a percent in the past couple of months, and this creates headwinds for the RBNZ in their battle to control non-tradable inflation pressures. The RBNZ decision is certainly a tough call given the declines seen in both business and consumer confidence recently, combined with the 23% collapse in dairy prices over the past four months, but a significant easing in OCR projections would potentially fuel another surge in the housing market. The inability of the government to appropriately address the key factors behind the surge in Auckland property prices has left the Reserve Bank Governor with a major dilemma, and one which is extremely hard to resolve through the use of LVR restrictions and OCR increases.

With the RBNZ only likely to adjust their interest rate projections slightly, there is a risk the market has adopted too dovish a tone, with interest rates and the Kiwi at risk of adjusting higher post the announcement. We saw the Kiwi rally significantly following the first two OCR hikes in this cycle, resulting in a threat of currency intervention from the RB Governor in early May, but potential exists for a similar short-term spike in the currency post the announcement. A bearish technical picture of the Kiwi had been building with the break of key support at 0.8500 at the end of May, but recent spikes to 0.8555 have clouded this view, and leaves the door open for a renewed push higher if the RBNZ disappoints the market on Thursday.

ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Half Full: Dairy Payouts Steady, Cash Will Be Tight

Industry body DairyNZ is advising farmers to focus on strong cashflow management as they look ahead to the 2015-16 season following Fonterra's half-year results announcement today. More>>

ALSO:

First Union: Cotton On Plans To Use “Tea Break” Law

“The Prime Minister reassured New Zealanders that ‘post the passing of this law, will you all of a sudden find thousands of workers who are denied having a tea break? The answer is absolutely not’... Cotton On is proposing to remove tea and meal breaks for workers in its safety sensitive distribution centre. How long before other major chains try and follow suit?” More>>

ALSO:

Scoop Business: NZ-Korea FTA Signed Amid Spying, Lost Sovereignty Claims

A long-awaited free trade agreement between New Zealand and South Korea has been signed in Seoul by Prime Minister John Key and the Korean president, Park Geun-hye. More>>

ALSO:

PM Visit: NZ And Viet Nam Agree Ambitious Trade Target

New Zealand and Viet Nam have agreed an ambitious target of doubling two-way goods and service trade to around $2.2 billion by 2020, Prime Minister John Key has announced. More>>

ALSO:

Scoop Business: NZ Economy Grows 0.8% In Fourth Quarter

The New Zealand economy expanded in the fourth quarter as tourists drove growth in retailing and accommodation, and property sales increased demand for real estate services. More>>

ALSO:

Scoop Business: RBNZ’s Wheeler Keeps OCR On Hold, No Rate Hikes Ahead

The Reserve Bank has removed the prospect of future interest rate hikes from its forecast horizon as a strong kiwi dollar and cheap oil hold down inflation, and the central bank ponders whether to lower its assessment of where “neutral” interest rates should be. The kiwi dollar gained. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news