Forget anything written before yesterday
Markets have a way of frustrating everyone, including the men and women who published thoughtful RBNZ previews yesterday.
The announcement of the first new covid case in six months followed by four more related cases has upended the market's thinking on the RBNZ and cut down the New Zealand dollar.
A day ago, the debate was about 25 bps or 50 bps but now it's about whether they'll hike at all. Some economists have already shifted, including Westpac which now argues for waiting and seeing on what happens during the seven-day Auckland lockdown.
The market is pricing in a 60% chance of a 25 bps hike and a 40% chance the RBNZ decides to wait and see.
Westpac says this regarding today's NZD trade:
We struggle to construct a plausible RBNZ scenario which would cause no market reaction. Thus, on this occasion, we present only two scenarios. A 25bp hike would indicate the hawkish resolve of the RBNZ, and cause swap rates and the NZD to rise. An on-hold decision would elicit the opposite reaction to the above, but the declines would be limited by an expectation that tightening has merely been delayed.
They envision a 50 pip NZD/USD move in either direction depending on the outcome.
