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Analysts at Nomura noted that the Reserve Bank of New Zealand (RBNZ) again announced an unchanged cash rate of 1.75% yesterday, as was forecast by all analysts according to Bloomberg.  

Key Quotes:

“It also repeated that it expects to keep the official cash rate (OCR) “at an expansionary level for a considerable period”. However, it removed its prior guidance that “the direction of our next OCR move could be up or down” which we judge to be a concession to better-thanexpected GDP, CPI and employment data.”

“While the RBNZ flagged mixed risks – saying growth could be weaker than expected but inflation could be stronger than expected – we believe its forecast revisions tilt in a more hawkish direction. In its subsequent press conference, the RBNZ governor tried to keep the possibility of a rate cut alive, saying that the bank was not taking a rate cut off the table and that it would consider a rate cut if GDP growth falls short of forecasts.”

“However, we would note that all policymakers desire flexibility and believe the solid hard data speaks for itself. Accordingly, we judge the probability of a rate cut to be very low and continue to forecast a first 25bp rate hike in Q4 of 2019. We have previously flagged a build-up of substantial short NZD and received rates positions, with positioning data and our own feedback suggesting that many investors had “bought” earlier more dovish guidance from RBNZ.”

“Accordingly, and despite yesterday’s moves post the strong labour market data, we see some risk of further unwinding of these positions.”