However, we did expect sterner wording within their statement to prevent the New Zealand Dollar appreciating higher, taking into account the constant reference to a lower exchange rate being required to help support tradable inflation.
"The exchange rate is higher than appropriate given New Zealand’s low export commodity prices. Together with weak overseas inflation, this is holding down tradables inflation. A lower New Zealand dollar would raise tradables inflation and assist the tradables sector."
The New Zealand gapped higher against several crosses, in particular against the Japanese Yen which jumped 77 pips at the release. After breaking several key levels across major pairs (below) the Kiwi Dollar now retails a near-term bullish bias.
"The dairy sector remains a moderating influence with export prices below break-even levels for most farmers."
GDP prices have begun to stabilise over the past month but not enough to get farms back above break-even levels. Export prices, the Kiwi Dollar and tradable inflation remain key variables to monitor going forward. We do find it curious as to why they seemingly allowed the NZ Dollar to strength, despite the Trade Weighted Index trading at its highest in 2016.
"We expect inflation to strengthen reflecting the accommodative stance of monetary policy, increases in fuel and other commodity prices, an expected depreciation in the New Zealand dollar and some increase in capacity pressures."
Quarterly CPI data is not released until 18th July so it can be argued this will be the sell-signal for broad NZD weakness if tradable inflation contracts for a 3rd consecutive quarter. Headline inflation is 'expected' to strengthen but with the quarterly read at 0.2% then the 'tradable' component is more likely to be the driver over the near-term. If we have a stringer NZD over the next month then it simply provides further reasons for a cut. We stand by our outlook that RBNZ is likely to cut in Q3.
"Monetary policy will continue to be accommodative. Further policy easing may be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data."
AUDNZD now sits precariously above the 30/10 low. A break beneath this key support will take it to a fresh 13-month low. Price action suggests a downside break is pending due to the price gap seen from a consolidation.
NZDCAD saw a similar gap and now confirms the original break of the (red) bearish trendline as a change of trend. The gap higher also saw it break above a bullish channel to add extra weight to the move. We are now targeting 0.912 and 0.920 whilst we remain above 0.8940 support.
NZDUSD has broken to a 12 month high as it takes full advantage of recent greenback weakness. We had called for a top below 0.71 but we now find ourselves above this level with a near-term bullish bias. Whilst we suspect the gains from 0.614 to be corrective, we have now upped our correction end target to the 0.723 area (which is a prior resistance leave and monthly R2. Above here opens up a run towards 0.7390 but we also have to keep in mind that as of next week, USD data flows will be back in control of global markets with domestic data taking a back seat for many major economies.