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The NZ economy is going through a softer patch and analysts at ANZ expect it will struggle to grow above trend from here.

Key Quotes

“On the other hand, cost pressures are increasing and look set to push inflation higher, though likely in a gradual fashion. On balance, and all else equal, we expect inflation will increase and that the OCR will eventually rise: we are pencilling in a hike for November 2019. But a lot can happen between now and then – and it will take some time for an interest rate increase to be on the table.”

“We think risks to the domestic inflation profile are skewed to the downside, which could see the hiking cycle pushed even later. And if conditions deteriorated significantly, a cut could eventuate quite rapidly.”

“Farm-gate returns remain supported by favourable supply/demand dynamics and the lower NZD. New Zealand export prices appear to have benefited from recent trade tensions, but further escalation poses some risks.”

“An inactive and cautious RBNZ, together with rising global yields should lead to domestic curve steepening, and a less favourable backdrop for borrowers overall, but it won’t be a smooth ride. The NZD is on the back foot, and further weakness is expected as the implications of a turn in the global liquidity cycle continue to play out. The NZD/AUD remains in a broad range-trading environment.”