RBNZ to remain dovish - AmpGFX

The RBNZ policy statement this Thursday is likely to maintain its dovish policy assessment, suggests the analysis team at Amplifying Global FX Capital. 

Key Quotes

“At its 11 May policy meeting, the RBNZ was surprisingly dovish, tending to dismiss the rise in Q1 inflation as largely temporary, and forecasting only a very gradual return in underlying inflation to its 2% target towards the end of its three-year horizon.  It forecast rates on hold until the second half of 2019.  This dovish assessment only had a very short-lived dampening impact on the NZD that has since rebounded to the top of its range again in the last six weeks.”

“The rise in the NZD has been aided by weaker US bond yields, a weaker USD, and strong emerging market assets.  NZ commodity prices have also firmed providing support for the NZD, especially against the AUD and CAD that have faced weaker prices for their main commodity exports. The RBNZ policy statement this Thursday is likely to maintain its dovish policy assessment.  It does not release new forecasts at this meeting, but we expect it to repeat its view that “Monetary policy will remain accommodative for a considerable period.” While business and consumer surveys remain strong, since the May meeting, GDP was reported to be modest for the second quarter in a row, and annual growth has slowed to the low side of its range for the last 5 years.”

“The housing market continues to remain more subdued, and the construction boom appears to have peaked.  There has been no new data on inflation, wages or employment.  The RBNZ is likely to express some disappointment with the rebound in the NZD.  The RBNZ has released a consultative paper on adding debt-to-income limits to its macroprudential tools to control the housing market, which should keep rate expectations low.  Political risk should also build for the NZD as its national election on 23 September approaches.”