Synopsis:
Credit Agricole expects the RBNZ to continue its jumbo rate-cutting cycle with another 50bp cut at Wednesday’s meeting. With New Zealand’s economy struggling through a deeper-than-expected recession, inflation pressures moderating, and weak consumer spending, the central bank has room to ease aggressively.
In FX, AUD/NZD faces key resistance at 1.1150 and 1.12, with a break above 1.12 opening the way towards 1.14, a 2-year high.
Key Points:
RBNZ Outlook (Feb Meeting)
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Another 50bp Rate Cut Expected
- NZ’s H2 2024 recession was deeper than expected by the RBNZ.
- Inflation is decelerating and now close to the RBNZ’s 1-3% target band.
- Services inflation is softening, and 2-year ahead inflation expectations (2.06%) align with the RBNZ’s target.
- Core inflation (factor sector model) at 3.1% YoY is sharply falling.
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Further Rate Cuts Expected Through 2025
- RBNZ’s OCR expected to reach 3.15% by year-end, near the top of its neutral rate range (2.50-3.50%).
- The bank may lower its OCR path forecast, signaling further easing ahead.
- While the weaker NZD will push near-term inflation slightly higher, GDP growth downgrades will likely keep inflation contained.
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Tariff & Trade War Risks Considered
- Trump’s tariffs and rising commodity prices (dairy) create upside inflation risks.
- However, downside risks to NZ exports from a global trade war could dominate.
AUD/NZD Levels to Watch
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1.1150: First Key Resistance Level
- Investors pushed AUD/NZD higher post-RBA’s hawkish cut.
- Cross struggled to break 1.1150 today.
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1.12: Strong Resistance
- A break above 1.12 would be significant and could push the pair towards:
- 1.14: A 2-year high for AUD/NZD.
Conclusion:
The RBNZ is set to cut rates by 50bps, reinforcing the divergence between the hawkish RBA and a dovish RBNZ. If this divergence continues, AUD/NZD could push towards 1.12, with a break above leading to 1.14. However, trade war risks remain a concern, particularly for NZ exports, and could limit gains.
