RBNZ: Lack of clear commitment to an easing cycle - RBS

Research Team at RBS, suggests that in New Zealand they were disappointed by the initial market reaction to the RBNZ decision and subsequent market reaction, given their disposition to sell NZD vs. both AUD and USD.

Key Quotes

“The lack of clear commitment to an easing cycle in the base case scenario outlined by the bank last night was just that – a base case scenario, one that is subject to downside risks. In fact, the RBNZ included a chart in their Monetary Policy Statement showing the 90day bank bill rate path under various scenarios, including one that includes a lack of weakness in the TW NZD which is significantly more accommodative than the base case scenario. This is much more consistent with our own expectation that the Bank will be more aggressive in easing while the RBA may have scope to step back to a more neutral stance.

With all that said, the price action was quite encouraging yesterday for NZD bears like us. Despite a solid session for risk assets, the NZD reversed gains against both currencies after touching its highest level since June 2015 post RBNZ vs. the USD. On the back of yesterday’s move, we’ll establish long AUD/NZD here, preferring the cross over NZD/USD shorts given the pair may be more resilient amid the current yield grab environment.”