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ANZ analysts’ note that the RBNZ surprised the market with a dovish tone in its March OCR Review by explicitly referring to the risk of a higher NZD, but since then, the NZD has fallen a lot, accompanied by expectations for a lower OCR.

Key Quotes

“Interest rate differentials and relative terms of trade have been important drivers of the NZD/AUD and NZD/USD crosses recently. A lower exchange rate is an important channel for the RBNZ, and recent falls should add to inflationary pressure if the RBNZ locks them in by retaining its dovish tone and showing OCR cuts are expected.”

“To keep the stimulus from recent falls in the NZD and mortgage rates flowing, we expect the first OCR cut will be delivered in August, with two cuts to follow. This week brings the final pieces of the domestic data puzzle ahead of the May MPS, with the ANZ Business Outlook Survey on Tuesday and Q1 labour market statistics on Wednesday.”