Why a 50bp cut in April is looking increasingly likely

nzdtwi_2_3weekgif1Source NBNZ

The RBNZ felt that the dollar would fall toward a TWI of 47 – not lift to 55. As the Bank is currently focused on short-term economic activity, rather than inflation, the sudden lift in the TWI will actually give them more reason to cut harder in April.

Given this increasing risk of a larger cut I think iPredict has a good set of prices at the moment. 25 is still the most likely, but 50 has a good chance – although to be fair I did buy a small number of 50’s when I saw the relative price 🙂 .

On the no change side I think the market is highly over-pricing it – given that the Bank said it would only stop cutting when it is positive that they have hit the bottom of the cycle – as a result having a 22% chance of no change is not consistent with the 96% chance the market currently has on an OCR under 3% 😛 (as a result, I shorted a slightly larger bundle of these).

4 replies
  1. Miguel Sanchez
    Miguel Sanchez says:

    But isn’t the dollar going up because all is well with the world again? After all, with the US zombie banks reporting an operating profit since the start of this year, and the Fed printing money like there’s no tomorrow, surely the recovery must be just around… sorry, I can’t say it with a straight face.

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  1. […] the next meeting.  This was already more likely than during the meeting given the exchange rate – as we’ve discussed.  This is a big announcement on their part – effectively we may well be pushing towards the lower […]

  2. […] Why a 50bp cut in April is looking increasingly likely […]

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