CNH: USD/CNY Fixing at 7.1627

• CHINA SETS YUAN CENTRAL PARITY AT 7.1894 WEDS VS 7.1876

The RBNZ is widely expected to cut rates 25bp to 3.25% today bringing cumulative easing this cycle to 225bp and rates close to but still above its estimate of ‘neutral’. It still has room to reduce rates further if it feels the economy needs it with domestic activity still soft and global uncertainty elevated, thus its updated OCR profile will be monitored closely. However, data have shown some pickup in inflation recently, which it may reference.

• The RBNZ’s assessment that lower global and thus NZ growth are likely to be disinflationary should mean that the inflation outlook remains contained even if it is revised up in the short-term.
• Q1 CPI printed 0.1pp above the RBNZ’s February estimate at 0.9% q/q bringing the annual rate up to 2.5% from 2.2% but the RBNZ’s measure of core eased 0.1pp to 2.9% y/y, first time in the band in almost 4 years, and domestically-driven non-tradeables moderated 0.5pp to 4.0%, lowest since Q2 2021.
• However, Q2 inflation expectations 1-year ahead rose to 2.4% from 2.2% and 2-year ahead to 2.3% from 2.1%. Median household expectations were stable in Q2 but the mean 1-year ahead rose to 5.6% from 4.9%.

NZ inflation expectations %

• April monthly price data, which now account for 46.5% of the CPI, signalled some pressures, which could add a note of caution to the MPC’s statement. Volatile food prices rose 0.8% m/m & 3.7% y/y, highest since January 2024, as grocery prices rose.
• While Q1 wage growth moderated, the ANZ April business survey showed a rise in wage expectations for the year ahead but inflation expectations were stable.
• Q1 PPI input/output prices rose strongly at 2.9% q/q and 2.1% q/q respectively.

NZ ANZ business survey price/costs

RBA-dated OIS pricing is mildly firmer across meetings today. 

• Nevertheless, pricing is 9-25bps softer than last week’s pre-RBA levels.
• A 25bp rate cut in July is given a 70% probability, with a cumulative 73bps of easing priced by year-end.

Figure 1: RBA-Dated OIS – Current Vs. Pre-RBA Level

Source: MNI - Market News / Bloomberg