Tomorrow RBNZ meeting might be the starting point of a deep rate cut cycle in New Zealand. The RBNZ policy rate (OCR) is 5.5% currently. Between Aug’21 & May’23 they had a rapid rate hike cycle from 0 to 5.5% to counter the inflation threat. But since then while inflation has come down drastically, growth has cratered & unemployment rate has shot up. the choice in front of RBNZ is to start cutting tomorrow by 25 bps and give a dovish guidance as well OR wait till Nov meeting to start with a 50-bps cut and continue cutting rates well in to CY25. We expect RBNZ to start cutting tomorrow by 25 bps along with a strong dovish guidance. Our terminal rate pricing for OCR (RBNZ policy rate) is 2.5% where as market's current pricing is only 3.5%. But rather than going long outright on NZD, we like expressing our view by going long AUD against NZD. This is because we believe that RBA might remain status quo entire CY24 where as RBNZ cuts by 50-75 bps in REMCY24.
