Stay short NZD/USD, ahead of RBNZ – Deutsche Bank

By FXStreet FXStreet (Delhi) – Robin Winkler Strategist, expects the RBNZ to cut the OCR to 2.5% tomorrow and to retain a mild easing bias.

Key Quotes

“They have three compelling reasons to do so:

First, the TWI sits 7% above the year-end level forecast in the September MPS. This unexpected strength should lower the projected inflation path significantly, given the RBNZ’s estimate of a 10% pass-through. The RBNZ cannot rely on the Fed to come to the rescue, with a hike in December largely priced into the US dollar and short-term yields.

Second, commodity prices have continued to turn against New Zealand. Whole milk prices are down 15% since the last meeting. Although prices remain in line with the RBNZ’s conservative forecasts–anecdotally the September MPS assumed a fall to $1,500/kgMS vs. $2,260 at the last auction–the modest recovery since September does not justify the kiwi’s strength. Fonterra should realistically cut its season forecast at this week’s meeting, weighing further on farmers’ cash flows. Moreover, with the broader commodity complex 8% lower since the last meeting and oil prices sending another deflationary shock across the world, New Zealand’s prospects of importing inflation have also diminished.

Third, Auckland’s housing market shows signs of slowing, lowering the …read more

Source:: FX Street