New Zealand Dollar: Another 2015 Interest Rate Cut Looms Despite Milk Price Relief

The Reserve Bank of New Zealand will cut it OCR rate once more in 2015 according to BNZ - a move that is likely to ensure the NZD's downtrend remains in place.

The question for the New Zealand dollar exchange rate complex (NZD) is whether this cut is already backed into its value.

If it is then there is little prospect of additional downside pressures on the back of the move.

However, if BNZ stand alone in the market with their call then such an interest rate cut could add further pressure on the NZD.

“We continue to expect the RBNZ to cut the OCR a further 0.25%, to a cyclical trough of 2.50% by year-end. We formally forecast a cut at the October 29 meeting,though see the odds at around 50/50,” says analyst Kymberly Martin at BNZ.

The analyst does also acknowledge the argument for why the RBNZ might delay until December.  

There have been some recent glimmers of hope from the dairy sector which continues to be a key industry to consider for RBNZ decision makers.

The last meeting of the year is also accompanied by a full Monetary Policy Statement, which would allow the Bank full discussion of its views, if indeed the cut was seen to be the last in this cycle.

Martin notes that it is certainly possible the RBNZ could cut below its previous trough of 2.50%, but she believes quite a lot might have to deteriorate domestically and globally to push the Bank in this direction.

The RBNZ has conceded that monetary policy settings are already highly stimulatory. It is likely not convinced further cuts will help nudge inflation back toward its 2% central target, but may risk further inflaming a heated property market.

As can be seen there is a lot of uncertainty in what it is exactly the RBNZ will do - the bias is however for cuts to the interest rate.

Latest Pound / New Zealand Dollar Exchange Rates

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*Your Bank's Retail Rate	2.2328 - 2.242
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* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

It is this that should ensure the New Zealand dollar remains on a trajectory lower.

Keep in mind that the US Federal Reserve may also raise rates in 2015 - this could place further pressure on commodity-orientated currencies such as the New Zealand dollar.

The NZDUSD is therefore forecast to continue falling by all the analysts we follow.

The same is true against the pound sterling - the Bank of England will soon start raising interest rates and ensure the uptrend in GBPNZD remains alive.

Relief for NZD on Milk Prices

The NZD rebounded on news that Fonterra increased its milk payout forecast to farmers for the 2015/16 season by 75cents, from $3.85 to $4.60 per kg of milk solids.

The currency opened around .6350, .9050, .4170, .5650 and 76.20 against the USD, AUD, GBP, EUR and JPY respectively.

"It presents importers with a much needed opportunity to take some cover ahead of the next RBNZ meeting in October. The uplift in dairy prices should see them remain on hold but another cut cannot be ruled out at this stage," says a note from Tuatara Asset Management on the matter.