Crossing the wires (via Bloomberg), some data from NZ real estate agent Barfoot

• Average house price down 4.5% on the month
• Up 4.9% y/y
• Down 2% in the past 3 months

NZD/USD forecast for the week of August 8, 2016

The NZD/USD pair initially tried to rally during the course of the week, but turned around to form a fairly exhaustive looking shooting star. Because of this, I believe that the market will continue to bounce around in France drift lower, but I also recognize that the 0.70 level below is massively supportive. With this being the case, I feel that the market will eventually find buyers below, but it’s probably easier to trade this market basically off of the short-term charts, as there is a fairly tight feel that this market currently.

NZ data - ANZ Truckometer for July: -5.7% m/m (prior up 4.7%)

July heavy truck index down 5.7% on the month

• Prior revised to +4.1% (from +4.7%)

• ANZ note that the heavy indicator is running contrary to nearly all other economic indicators.
• Will look at August data for confirmation or otherwise of this result today
• Heavy Traffic Index was already suggesting weaker economic growth in Q2 than was seen in Q1
• Today's indication of a 'sharp fall in July' represents a poor start to Q3, though it is only one month of three

• Light traffic indicator down 0.6% on the month

NZD Into RBNZ: Is There a Case for a 50bp Rate Cut?

There might be some push back at some of the major global central banks to extend monetary policy into negative territory as focus shifts to fiscal policy, but monetary policy in the antipodes still has some way to go.

The Reserve Bank of Australia (RBA) cut rates last week (-25bp to 1.50%) and the Reserve Bank of New Zealand (RBNZ) is almost certain, in our view, to cut rates by 25bp to 2.0% this week.

A more extended easing cycle

We see more scope for an extended RBNZ easing cycle over coming months in light of the strength of NZD relative to RBNZ forecasts. The Bank has announced ... (full story)

Preview: RBNZ Cut a Done Deal But What's to Come?

Low consumer-price inflation and a resurgent New Zealand dollar will make Thursday's Official Cash Rate (OCR) decision a no-brainer for the Reserve Bank of New Zealand (RBNZ), but Governor Graeme Wheeler will need to do more than just cut the cash rate to send the right signal to markets.

A 25 basis points rate cut to the OCR has already been fully priced in by markets, with the RBNZ's economic update on July 21 all but confirming more easing is needed to get inflation back on track and contain the New Zealand dollar.

So, on Thursday, the benchmark cash rate will almost certainly be cut to a new record-low 2.0%, but the real question is: How much further is the RBNZ willing to go?

"We expect the 90-day rate projections to imply a low point for the OCR of 1.75%, compared to 2% in the June Monetary Policy Statement (MPS), paving the way for another rate cut in November," Westpac acting chief economist Michael Gordon said in a note.

Wheeler has, for the most part, been a reluctant cutter, not least of all because of the distortions in New Zealand's rampant property market.

But with inflation showing few signs of picking up in any rush, and following the RBNZ's recent announcement of tighter mortgage lending restrictions, markets are already pricing in at least one further 25 basis points cut to the OCR in the year ahead.

NZD pressure

One of the strongest cases for further easing is to help stem the New Zealand dollar's strength. Already the TWI is trading 6.5% higher than the average level the RBNZ predicted for the current quarter.

The currency's strength is adding further pressure to an already embattled dairy sector, where prices remain more than 50% below their 2014 peak and, crucially, below break-even level for most dairy farmers. Needless to say, other exporters are also feeling the pinch of the strong exchange rate.

The high New Zealand dollar is also impeding the RBNZ's chances of getting inflation back to within the 1-3% medium term target band, by keeping import prices down.

Data released by Statistics New Zealand last month revealed that the CPI rose a steady 0.4% year-on-year in the June quarter, missing the 0.6% rate forecast by the RBNZ and the market's 0.5% prediction.

Tradables deflation deepened from 1.2% in the March quarter to 1.5% last quarter, suggesting the New Zealand dollar's depreciation between mid 2014 and late 2015 is no longer supporting import prices.

As the RBNZ put it during its economic update last month, the recent strength of the New Zealand dollar "makes it difficult for the bank to meet its inflation objective".

Further still

"Given that the financial markets have already priced in an 80% chance of an interest rate cut to 1.75%, to place downward pressure on the exchange rate the RBNZ may need to suggest that it intends to cut rates further still," chief Australia and New Zealand economist at Capital Economics Paul Dales said in a note.

Dales, who is among the more dovish economists, thinks the OCR will be cut to 1.5%, or lower, next year.

A big unknown for New Zealand's central bank is the policy track of its US counterpart, the Federal Reserve (Fed).

In December the Fed hiked interest rates for the first time in almost a decade and signaled four more 25 basis points hikes for 2016. However, the Fed has since made no change to its policy rate, and, for numerous reasons, markets see very little chance that the Fed will hike rates this year at all.

The Fed's reluctance to hike interest rates has put a massive spanner in the works for many central banks around the world who were relying on tighter policy settings in the US to help depreciate their respective currencies relative to the US dollar.

Some central banks have had to take the initiative to lower their exchange rate and improve the outlook for inflation, including the Reserve Bank of Australia, who last week cut the benchmark rate to a record-low 1.5%.

ASB senior economist Jane Turner says the RBNZ needs to show it’s just as, if not more, willing to cut rates in line with New Zealand's major trading partners, if the bank is to keep the New Zealand dollar low.

"The RBNZ’s 90-day track is key for market reaction on Thursday – at a minimum it needs to confirm at least one more cut to 1.75% is likely this year. Even better, signal the risk that interest rates will go even lower (or really go all guns blazing and cut 50 basis points – though this seems unlikely)," said Turner.

source

New Zealand - RBNZ: CUT RATES by 25bp

Monetary policy announcement from the Reserve Bank of New Zealand 

• RBNZ sees 90-day bank bill avg 2.1 pct dec 2016 (pvs 2.2 pct)
• Says further policy easing may be needed
• Sees 90-day bank bill avg 2.0 pct March 2017 (pvs 2.2 pct)
• Monetary policy to remain accommodative
• Sees 90-day bank bill avg 1.8pct June 2017 (pvs 2.1 pct)
• RBNZ says closely watching economic data
• Sees annual CPI +1.0pct December 2016 (pvs +1.3 pct)
• Says a decline in NZD is needed
•  Sees TWI NZD at around 75.9 by December 2016

RBNZ Rate Cut Fails to Reverse New Zealand Dollar’s Strength

New Zealand’s latest effort to boost inflation and curtail its rising currency has been met with resistance, as solid economic growth and a surging housing market continue to boost confidence in the economy.

The Reserve Bank of New Zealand (RBNZ) lowered interest rates by 25 basis points last week to a new low of 2%. It was the Reserve Bank’s sixth rate cute since June 2015.

With the move, New Zealand joins Australia as the latest casualty of a global monetary easing campaign designed to stave off deflation and boost economic growth. Just a week earlier, the Reserve Bank of Australia (RBA) also lowered interest rates to new lows.

The RBNZ’s latest easing campaign failed to reverse the New Zealand dollar’s strength, raising concerns that a firmer local currency will continue to undermine inflation and weigh on exports. The New Zealand dollar, also known as the kiwi by currency traders, rose sharply in the latter half of the week to close just below 0.7200 US. The NZD/USD exchange rate gained 1% last week and is up more than 8% over the past six months.

While the RBNZ has expressed willingness to lower interest rates again this year, this is unlikely to deter continued gains in its high-yielding currency. The RBNZ will hold just two more policy meetings this year. The next meeting and rate decision will come September 22.

The kiwi’s continued strength reflects the economy’s relatively solid performance through the first six months of the year. On Friday Statistics New Zealand said retail sales surged in the second quarter, adding to the view that consumer spending was responding positively to lower interest rates.

Retail sales spiked 2.3% in the June quarter, nearly three times the growth rate of the first three months. The reading squashed forecasts calling for a 1% advance. Excluding automobiles, sales climbed 2.6% following a 1% uptick the previous quarter.

read more

NZ Q2 Employment change: 2.4% q/q (expected 0.6%)

NZ data - ANZ Consumer Confidence for August: 117.7 (prior 118.2)

Down 0.4% m/m

• prior was down 0.6% m/m

NZD/USD forecast for the week of August 22, 2016

The NZD/USD pair rallied during the course of the week, but continues to find the 0.73 level to be far too resistive to continue to going higher. With this being the case, if we can break above that area, the market should continue to reach towards the 0.75 level, or a pullback that find plenty of support all the way down to the 0.70 level. With this being the case, longer-term it’s likely that we will continue to see buyers but there will more than likely be quite a bit of volatility.