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According to analysts at Westpac, RBNZ pricing fell further last week following the RBA’s shift from a distant tightening bias to a neutral one, and is now pricing a 90% chance of a cut by March 2020.

Key Quotes

“It is more dovish than our expectation the RBNZ will remain on hold through till the end of 2021, but probably contains some pre-emptive pricing for this Wednesday’s RBNZ MPS.”

“We expect a dovish shift, along the lines of the RBA, back to an evenly balanced stance (perhaps a revival of the “up or down” guidance phrase or similar set of words). A higher NZD TWI, slowdown in economic momentum, and lower migration are notable negative developments.”

“In addition to a dovish shift in stance, the RBNZ’s OCR forecast could be lowered at the long end to remove the current bias towards distant tightening. Such an outcome would probably push market pricing above 100% chance of a cut (as it has done in Australia), and 2yr swap rates down to a fresh record low below 1.77%.”