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13 Mar 2014
Flash: RBNZ offers a significant positive surprise - Westpac
FXStreet (Bali) - As Imre Speizer, FX Strategist at Westpac, notes, there was enough hawkishness rhetoric on the RBNZ statement to positively surprise the NZD/USD market.
Key Quotes
"The RBNZ’s MPS, just released, has increased the OCR by 25bp to 2.75% - widely expected – but there was enough otherwise to positively surprise the market."
"Of most interest for markets was the implied pace of rate hikes. To that end we received two clues. First, the final policy paragraph said “While headline inflation has been moderate, inflationary pressures are increasing and are expected to continue doing so over the next two years. In this environment it is important that inflation expectations remain contained. To achieve this it is necessary to raise interest rates towards a level at which they are no longer adding to demand. The Bank is commencing this adjustment today. The speed and extent to which the OCR will be raised will depend on economic data and our continuing assessment of emerging inflationary pressures. ”
"Second, and more explicitly, the RBNZ’s 90-day interest forecast was raised by 23bp at the Dec-14 point, to imply an OCR by then of 3.75%. Prior to the MPS, the market had priced in 3.64% by December 2014. Thus, it was moderately and positively surprised."
"Further, by extending the forecast to 2017 today, the RBNZ has also signalled its projected terminal rate – at least 5.00%. Earlier, the market had priced in a 4.50% terminal rate. This is a significant positive surprise."
"The above caused the 2yr swap rate to rise 4bp and the 10yr 1bp in response. The curve thus flattened. NZD/USD was initially confused but is currently higher at 0.8505 (vs 0.8466 pre-MPS). AUD/NZD fell from 1.0612 to 1.0560."
"We expect the initial reactions to be extended slightly during tonight’s London and NY sessions. The 2yr swap rate targets 4.00%. The 2-10yr swap curve should test 110bp below. Swap spreads should widen. NZD/USD should test 0.8525 above, while AUD/NZD should target 1.0500 below."
Key Quotes
"The RBNZ’s MPS, just released, has increased the OCR by 25bp to 2.75% - widely expected – but there was enough otherwise to positively surprise the market."
"Of most interest for markets was the implied pace of rate hikes. To that end we received two clues. First, the final policy paragraph said “While headline inflation has been moderate, inflationary pressures are increasing and are expected to continue doing so over the next two years. In this environment it is important that inflation expectations remain contained. To achieve this it is necessary to raise interest rates towards a level at which they are no longer adding to demand. The Bank is commencing this adjustment today. The speed and extent to which the OCR will be raised will depend on economic data and our continuing assessment of emerging inflationary pressures. ”
"Second, and more explicitly, the RBNZ’s 90-day interest forecast was raised by 23bp at the Dec-14 point, to imply an OCR by then of 3.75%. Prior to the MPS, the market had priced in 3.64% by December 2014. Thus, it was moderately and positively surprised."
"Further, by extending the forecast to 2017 today, the RBNZ has also signalled its projected terminal rate – at least 5.00%. Earlier, the market had priced in a 4.50% terminal rate. This is a significant positive surprise."
"The above caused the 2yr swap rate to rise 4bp and the 10yr 1bp in response. The curve thus flattened. NZD/USD was initially confused but is currently higher at 0.8505 (vs 0.8466 pre-MPS). AUD/NZD fell from 1.0612 to 1.0560."
"We expect the initial reactions to be extended slightly during tonight’s London and NY sessions. The 2yr swap rate targets 4.00%. The 2-10yr swap curve should test 110bp below. Swap spreads should widen. NZD/USD should test 0.8525 above, while AUD/NZD should target 1.0500 below."