Central Bank Watch: BOC, RBA, RBNZ Interest Rate Expectations Update

RESERVE BANK OF NEW ZEALAND ON HOLD

The RBNZ will meet within 24-hours from now, but traders shouldn’t be anticipating much of anything to come from the meeting. While the housing market remains a source of concern for policymakers, the RBNZ appears unlikely to make any adjustments at present time (though the balance of risks is hawkish). Furthermore, given that new growth forecasts are due, more optimism may be perceived as a reason for Kiwi bulls to perk up.

RESERVE BANK OF NEW ZEALAND INTEREST RATE EXPECTATIONS (MAY 25, 2021) (TABLE 3)

Central Bank Watch: BOC, RBA, & RBNZ Interest Rate Expectations Update

With house price growth forecasts moderating and the New Zealand economy steadily improving, the RBNZ is in a fairly comfortable position to sit tight. New Zealand overnight index swaps are now pricing in a 9% chance of a rate cut by mid-year, up from the 1% chance priced-in upon our prior review. The RBNZ may make overtures to signal removal of stimulus plans eventually, but not vis-à-vis the interest rate channel in the near-future.

IG CLIENT SENTIMENT INDEX: NZD/USD RATE FORECAST (MAY 25, 2021) (CHART 3)

Central Bank Watch: BOC, RBA, & RBNZ Interest Rate Expectations Update

NZD/USD: Retail trader data shows 41.70% of traders are net-long with the ratio of traders short to long at 1.40 to 1. The number of traders net-long is 10.29% lower than yesterday and 7.31% lower from last week, while the number of traders net-short is 13.70% higher than yesterday and 6.27% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests NZD/USD prices may continue to rise.

Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger NZD/USD-bullish contrarian trading bias.

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