NEW ZEALAND: Westpac Expects A Further OCR Cut
Westpac has added an extra 25bps cut to its outlook, taking the OCR to 3% by July, due to downside risks emanating from the global economy. See below for more details.
Westpac: "We should consider and put some weight on the downside risks for global growth. It's those risks that markets have responded to recently and which the RBNZ MPC will likely act on when cutting the OCR a further 25bp at their May meeting. We had thought that the easing cycle would be over by mid-2025. But trade uncertainty is likely to persist for longer than that, which means the downside risks will be with us until at least August and possibly longer.
A corollary is that once reaching this new lower trough, the OCR could remain there for longer. Given a General Election is likely in late 2026 it seems prudent to assume at this point the tightening cycle might begin at the end of 2026 as opposed to mid-2026 as previously assumed. We also note that Treasury and the Minister of Finance have been vocal in suggesting that interest rates should be cut in the event of the downside risks crystallising. It's likely
the interim RBNZ Governor and the MPC will have that in mind when determining the best path forward.
It's by no means clear that the downside risks will eventuate, but we expect the RBNZ to continue to move methodically in the easing direction while those downside risks remain. A move in the OCR to 3% now seems likely by August. We don't expect a lurch lower - it would take tangible signs of a more significant impact on the NZ economy and critically the inflation outlook to cause the MPC to move more quickly. It will be important to ensure the MPC’s actions now don't necessitate the need for an aggressive rise in interest rates down the track should conditions not prove as weak as feared by markets. Policy is likely stimulatory now."
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US OUTLOOK/OPINION: Mfg Prices Paid Suggest Core Goods Caution Needed [2/2]
- When it comes to core goods more broadly, we’re mindful here of the rapid increase in reported manufactured input costs per various business surveys.
- The ISM manufacturing survey for March followed cues from the regional Fed surveys with its 69.4 prices paid reading at its highest since Jun 2022 (and +14.5pts since President Trump’s inauguration in January).
- Separately, the MNI Chicago PMI prices paid component only retreated 0.4pts in March having in February seen its sharpest monthly increase since July 1957 for its highest level since August 2022.
- Fed Governor Kugler, when speaking on Mar 25, called an apparent end of goods price disinflation as an "unhelpful" development as this category that "has often kept a lid on total inflation and also affects inflation expectations... I am paying close attention to the acceleration of price increases and higher inflation expectations, especially given the recent bout of inflation in the past two years".
- It followed Fed Chair Powell at the Mar 19 FOMC press conference, who whilst sounding fairly optimistic on the inflation outlook, interestingly specifically noted that recent inflation readings now showed more goods-driven inflation ("we have had two very strong goods inflation readings in the last two months which is very unexpected", noting that tariffs likely played a factor).
US OUTLOOK/OPINION: Analysts Eye Slight Moderation In Core Goods [1/2]
- Analysts perhaps surprisingly look for a moderation in core goods inflation to circa 0.1% M/M after February saw a modest upside surprise with 0.22% M/M (0.16% expected) following 0.28% in Jan (strongest since May 2023).
- February’s strength was helped by used cars prices rising 0.9% M/M - a category expected to fall moderately in March - whilst core goods ex used cars increased 0.12% M/M.
- Core goods ex used cars prices increased a rounded 0.1% M/M in three of the six months up to February, already a reasonable ‘acceleration’ from the near flat readings averaged in both 2024 (with 7 of 12 months seeing declines on an unrounded basis) and pre-pandemic.
- Around 20% of US apparel imports are from China, with analysts expecting a moderation to 0.3% M/M after 0.6% M/M. It’s a noisy category and so should be taken with caution but we’ll nevertheless watch it closely.
USDCAD TECHS: Trend Structure Remains Bearish
- RES 4: 1.4452/4543 High Mar 13 / 4 and a bull trigger
- RES 3: 1.4415 High Apr 1
- RES 2: 1.4302 50-day EMA
- RES 1: 1.4248 High Apr 8
- PRICE: 1.4212 @ 16:33 BST Apr 8
- SUP 1: 1.4028 Low Apr 3 and the bear trigger
- SUP 2: 1.3986 Low Dec 2 ‘24
- SUP 3: 1.3944 61.8% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 4: 1.3894 Low Nov 11 ‘24
USDCAD has recovered from last week’s low. For now, the move higher appears corrective. The sell-off last week confirmed a resumption of the medium-term bear cycle that started Feb 3. Price has traded through a key support at 1.4151, the Feb 14 low, and this signals scope for an extension towards 1.3944, a Fibonacci retracement. On the upside, key short-term resistance is seen at 1.4302, the 50-day EMA.
