RBNZ wastes its ammunition – UBS

By FXStreet FXStreet (Córdoba) – The Reserve Bank of New Zealand (RBNZ) cut rates by another 25 basis points, taking the cash rate to 2.5%. The UBS analyst team notes that judging by the Kiwi dollar’s post-decision action alone, one could assume no cut was made.

Key Quotes

“The NZDUSD cross rallied 1.5%, as a hard-line easing bias was replaced with a softer tone, which clearly gave participants the green light for currency gains. In our opinion, the currency reaction indicates that the RBNZ made a mistake by dropping its explicit easing bias. Indeed, if this was an insurance cut in the hope of levering the inflation rate higher and the currency lower, it failed and wasted a cut.”

“At the same time, the RBNZ released an updated set of macro forecasts: in essence, it lowered inflation and raised growth expectations. It now sees growth rising gradually as dairy prices recover, helping the country’s terms of trade, and easier monetary conditions supporting growth. Headline inflation is forecast to stay lower for longer; the 2% target midpoint is unlikely to be reached until 4Q17. This makes some sense given the lift in expectations for the currency’s trade-weighted index (TWI), which is now 4-5% higher than projected …read more

Source:: FX Street