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19 Feb 2013
Forex Flash: Antipodean monetary policy expectations to diverge – ANZ
Looking ahead, we expect monetary policy expectations to move in opposite directions again as the Australian market prices in a less aggressive easing profile and the NZ market prices out rate hikes. In New Zealand, the market has moved to price in 80% odds of a rate hike by October. The 2-year swap rate has surged as a consequence. Markets can and will lurch from one extreme to the other.
However, we are cognizant that the NZ dollar trade-weighted index has hit a record high in the past week (partly due to weakness in this cross), thereby tightening NZ financial conditions. We are also mindful of NZ’s contractionary fiscal stance; and the potential for macro-prudential policy to take pressure off the RBNZ. These factors do not, in our view, lend themselves to a 2013 commencement in the rate hike cycle. And as such, we expect rates to moderate in NZ.
By contrast, the RBA has scope to ease as today’s February minutes have again made clear. We expect cuts in June and November. However, there appears to be growing fears in the market that the RBA are done for now. This is a vulnerability and may place further upward pressure on AUD short end rates
However, we are cognizant that the NZ dollar trade-weighted index has hit a record high in the past week (partly due to weakness in this cross), thereby tightening NZ financial conditions. We are also mindful of NZ’s contractionary fiscal stance; and the potential for macro-prudential policy to take pressure off the RBNZ. These factors do not, in our view, lend themselves to a 2013 commencement in the rate hike cycle. And as such, we expect rates to moderate in NZ.
By contrast, the RBA has scope to ease as today’s February minutes have again made clear. We expect cuts in June and November. However, there appears to be growing fears in the market that the RBA are done for now. This is a vulnerability and may place further upward pressure on AUD short end rates