Following the weak CPI figure in New Zealand as well as the special RBNZ report, two banks see the RBNZ cutting in August. In the case of Goldman Sachs, they see the pair falling to 0.62. In the case of Nomura, they also see the ECB cutting:
Here is their view, courtesy of eFXnews:
RBNZ To Cut Rates On 3 Further Occasions; NZD/USD En-Route To 0.62 – Goldman Sachs
In a scheduled “Economic Update” published on Thursday, the RBNZ signalled a significant strengthening in its easing bias, and dovish shift across its views on domestic inflation and domestic/global growth. At the heart of many of these changes is renewed concern about the elevated NZD. In our view, these changes make clear that the RBNZ is positioning for a deeper easing cycle, notwithstanding ongoing risks to financial stability from rising house prices.
Overall, given recent progress to mitigate these latter risks (efforts we expect will intensify), the RBNZ’s published policy sensitivities, our forecast depreciation in the NZD, and below-consensus growth outlook, we now expect the RBNZ will cut rates on three further occasions in August 2016 (-25bp), November 2016 (-25bp) and March 2017 (-25bp). This implies the OCR will finish this cycle at a low of 1.50% (-50bp lower than our previous forecast).
We continue to forecast NZ$/US$ at 68, 64, 62 in 3, 6 and 12 months, respectively.
RBNZ To Cut Policy Rate In August, ECB To Cut Depo Rate In September – Nomura
Following the latest RBNZ meeting in early June, when the RBNZ left its policy rate unchanged, we highlighted that a rate cut before the end of the year was very likely and that it could happen as soon as at the August meeting. However, the timing of the easing depended on inflation, exchange rates and the housing market. Over the past week, we have received new information on all those points and they are all suggesting an increased likelihood of a rate cut. This was confirmed in the economic assessment recently released by RBNZ, in which it said that “it seems likely that further policy easing will be required to ensure that future average inflation settles near the middle of the target range”. As such, we believe that the RBNZ will cut its policy rate by 25bp at the August.
The ECB kept all key policy rates unchanged and reinforced its forward guidance of interest rates expected to remain low for long. The ECB did not discuss potential changes to its APP programme, referring to the need for more information, including updated September macroeconomic projections. Because of the emphasis of the ECB’s flexibility in terms of policy adjustment, we maintain our call for the ECB to cut the deposit rate by 10bp in September, extending the duration of the programme to September 2017 and announcing technical changes to the programme’s design.
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