RBNZ’s Conway: Global uncertainty may ease inflation – BBH

NZD/USD is consolidating yesterday’s gains around 0.6050. RBNZ Chief Economist Paul Conway maintained a dovish tone, BBH FX analysts report.

Scope for further OCR cuts

"Conway warned that 'Global tariffs and economic uncertainty are likely to mean less inflation pressures in New Zealand and a pullback in business investment and household spending.' Importantly, Conway reaffirmed the bank’s view that it 'sees scope to lower the OCR further if medium-term inflation pressures continue to ease as projected'."

"In our view, the RBNZ has one more cut in the pipeline. New Zealand inflation is within the target band and the policy rate is close to the RBNZ mid-point estimate of the neutral range between 2% and 4%. The swaps market price-in 86% probability of a 25bps RBNZ rate cut at the August 20 meeting."

"Over the next 12 months, the swaps market price-in 40bps of easing and the policy rate to bottom between 2.75% and 3.00%. Bottom line: there is room for New Zealand rate expectations to adjust higher in favor of NZD."