RBNZ: Likely Q2 Inflation Peak, Removing Stimulus At This Stage
While inflation remains above target, the RBNZ believes that it peaked it in Q2 at 3.9%, a downward revision from May’s 4.2% estimate. Q3 is now forecast to moderate to 3.3% revised down from 4.3%. Despite this the MPC still decided to hike rates to prevent inflation becoming embedded in wage and price-setting behaviour, due to concerns there could still be some lingering effects from the Iran War, growth is looking stronger and the NZD is weaker. However, with the improved inflation and growth outlooks, the timing of a further reduction in stimulus is even more uncertain.
- In deciding policy at future meetings, the MPC will consider all data that affects inflation over the medium-term, including surveys and growth indicators that have inflation content.
- While the neutral rate is very difficult to estimate, the bank believes that at 2.25% the OCR was below neutral and therefore stimulatory. It is now removing monetary stimulus rather than becoming restrictive, which chief economist Conway emphasised at the end of the conference. He said that currently neutral is seen to be slightly above the long-term 2.5-3.5% estimated range given that inflation is above target.
- Conway also noted that administered prices have been growing at 7-9%/year over the last few years and that they account for around 80% of the CPI basket. This and weak competition in certain sectors blunt the effectiveness of the OCR but Governor Breman emphasised that it is still efficient in reducing inflation.
- The MPC expects activity to strengthen but it remains uneven with export sectors the main drivers. Domestic demand is weak due to the inflationary hit on households’ purchasing power, which it hopes lower inflation will support.
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FOREX: Yen Shorts Extend, NZD Bounce Sold By Leveraged Contracts Post RBNZ
Last week's CFTC FX positioning update (for the week ending June 2, last Tuesday), saw a further extension of JPY shorts. Leveraged contract shorts are now beyond -100k. This is getting closer to historical extremes in terms of shorts, and will leave the market on intervention watch (which was already the case given official rhetoric). Aggregate shorts, including asset manager contracts, are now around -168k, which is still in from extremes we saw in 2024. USD/JPY has gravitated above 160.00, amid broader USD gains post the NFP beat on Friday and higher oil prices amidst fresh Israel-Iran strikes. We haven't heard from Japan officials so far today on FX markets.
- Elsewhere, we saw EUR and GBP buying, more so for EUR. Leveraged contracts are still short EUR.
- We had further net selling for the AUD, with asset managers only now marginally long. CAD shorts were added to in both the leveraged and asset manager space.
- Interestingly, NZD/USD positions saw leveraged net selling, adding to existing shorts. This means this space added to NZD shorts as the Kiwi bounced post the RBNZ in terms.
Table 1: CFTC FX Positioning Update - Weekly Change & Outright Position (To June 2 2026)
| Leveraged Contracts | Asset manager Contracts | |||
| Weekly Change | Outright Position | Weekly Change | Outright Position | |
| JPY | -18887 | -105136 | -6538 | -62814 |
| EUR | 3991 | -22320 | 16257 | 314385 |
| GBP | 645 | 27022 | 7590 | -101728 |
| AUD | -1241 | 56800 | -18370 | 1441 |
| NZD | -14030 | -27797 | 7894 | -26177 |
| CAD | -6858 | -49052 | -24598 | -50566 |
| CHF | -5131 | -10782 | 6405 | -32517 |
| MXN | 6352 | 56199 | -6058 | 25162 |
Source: Bloomberg Finance L.P./MNI
NEW ZEALAND: This Week RBNZ’s Conway Speaks & Manufacturing Data Print
The main events this week will be on Friday with some monthly data and RBNZ chief economist Conway speaking.
- RBNZ chief economist Conway will discuss the May Monetary Policy Statement at the Westpac Smarts Business Luncheon on Friday. The event won’t be livestreamed and notes won’t be published.
- The May BNZ manufacturing PMI is released on Friday. The index moderated to 50.5 in April from 52.8 but has held in expansionary sector since June last year.
- There is further manufacturing sector data on Tuesday with Q1 volumes and activity. There was a slight improvement in the Q1 average PMI to 54.1 from Q4’s 53.3. Q1 GDP prints on 18 June.
- April net migration is out on Friday. It has been trending higher since the lows seen over late 2024/early 2025.
CNH: USD/CNY Fixing Edges Up, But Error Term Noticeably Tighter.
The USD/CNY fix edged a little higher to 6.8198 for Monday, versus the 6.8157 outcome from Friday. The fixing error was notably tighter at +219pips, versus +403pips on Friday. This fits with the strong USD index levels in the aftermath of the NFP beat on Friday and spike in oil futures today, as fresh Israel-Iran strikes impact sentiment. USD/CNH is around 6.7880/85 currently, still slightly down for the session so far. This is close to the 20-day EMA resistance point. Note the 50-day rest at 6.8170. Friday highs in the pair were around 6.7920, while earlier lows were just under 6.7650.
