ASB with their latest outlook for the New Zealand economy and more. This on the RBNZ and the kiwi dollar.
ASB expect
- start of the next expected RBNZ tightening cycle to February 2020 (previously November 2019)
- ASB remain constructive on the economic outlook and do not expect RBNZ cuts
- risk is that if inflationary pressure fails to materialise, eventual OCR increases may occur later than early 2020
- We have also revised down our assumed end-point for the extent to RBNZ tightening, with the OCR expected to peak at just 2.75% this cycle (from August 2021 onwards)
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- more cautious RBNZ assessment
- our expectation that CPI inflation will remain low
- RBNZ will tread more carefully given the moderate policy tightening expected from other central banks and downward global risk profile
- Escalating trade tensions, emerging market risks and slowing growth in China will likely further support the USD
For the New Zealand dollar:
- NZD in a 65 to 71 US cent range over the forecast period
- NZD TWI should remain broadly supported by a solid growth outlook, our historically-high terms of trade and upwardly-drifting NZ interest rates
- NZD is expected to remain in a 90-91 Australian cent zone through to the end of next year
- We expect the NZD to ease slightly over the projection period relative to EUR. The European Central Bank is expected to hike rates in September 2019 although slow growth in the Eurozone will limit the extent of ECB tightening. Political uncertainty in Italy, the weak fiscal outlook in some countries, and risks of an escalation in trade tensions should cap euro upside.
- We also expect that Brexit risks will keep the GBP low against the NZD.
- Low inflation is expected to keep the Bank of Japan on hold, with the NZD/JPY modestly strengthening over the forecast period.
