RBNZ: Market pricing 80% chance of OCR cut in November - Westpac

Imre Speizer, Research Analyst at Westpac, suggests that the market pricing for a 25bp RBNZ’s OCR cut to 1.75% by 10 November implies that there is an 80% chance, lower than the 98% priced in a week ago.

Key Quotes

“There are two reasons for this decline: first, the RBNZ has communicated that it prefers to move on MPS dates, which means September can be ruled out; there will be a lot of fresh information between now and November which could sway the RBNZ either way. Our view is that a Nov cut is highly likely. The second reason is that US rates have risen amid hawkish Fedspeak during the past week.

Yellen’s speech on Friday has the potential to confirm that hawkishness, which means pricing for a December hike could rise from the currently fence-sitting 50% . RBNZ pricing would decline because NZ term rates would follow US term rates higher, and also because higher US rates would push the US dollar higher (in turn lowering the NZD/USD exchange rate - a defacto easing).

Further out, markets continue to believe in a 1.5% terminal OCR, pricing a 60% chance. The RBNZ itself has said a 1.5% OCR is possible, if economic developments warrant it.”