RBNZ and the RBA: Market is betting on cuts - SocGen

Kit Juckes, Research Analyst at Societe Generale, suggests that the RBNZ (on Aug 10) and the RBA (on Aug 2) both have rate-setting meetings coming up, and the market is betting on cuts.

Key Quotes

“The RBNZ’s easing stage has been set out, with the economic update coming tomorrow, yesterday’s CPI data coming in below expectations, and this morning, they tightened some loan conditions to signal a preference for macro-prudential measures as the best way to tackle a strong housing market. The only question is how much more can be pried in, but with 2yr rate ones 16bp below the current cash rate, there seems to us, further to go. Our favoured way of trading NZD shorts has been against the CAD, but we got stopped out in the last rally, which has failed (spectacularly for the fourth time) under 0.96. More fool us. There’s downside there but we like NZD shorts vs. USD, AUD and EUR too.

The RBA Minutes suggest that if the CPI data on July 27 are soft, rates will fall to 1.5% on Aug 2. The move is price din with less conviction than for the RBNZ, but there’s also less far for the RBA to ease overall from here. Hence, AUD/NZD looks OK as a long but still, we look for AUD/USD to get below 0.70 in due course.”