The central bank highlight this week is the RBNZ

RBNZ Gov Graeme Wheeler

The RBNZ decision is Thursday in Auckland (Wednesday in the US) and there is suddenly talk of a 50 basis point cut.

Every economist in the Bloomberg survey is predicting rates will be lowered to 3.00% from 3.25% but on Friday Capital Economics was the first to forecast a 50 bps cut to 2.75%.

The RBNZ was dovish in the June statement but since then, there has been a run of bad news:

  • Q1 GDP at 0.2% vs 0.6% expected
  • Soft Q2 CPI at 0.4% vs 0.5% exp
  • China trouble
  • A dive in milk prices

BNZ recognizes the chance of a larger cut but argues against it.

"Cutting 50 points would, for instance, give a sense that the Bank is way behind the curve, and suddenly seeing a decidedly negative economy. For all the risks out there, we don't believe it's got to that point," economists write.

Another factor to watch is the commentary on the New Zealand dollar. The current statement references the "unjustified and unsustainable" level of the kiwi. It's fallen 8.5% since June so there's a risk that's remove.

What happens beyond this week's meeting is also in focus. The economist consensus still shows 3.00% at year end but some firms are now predicting further cuts in September and October.

If the RBNZ cuts by 25 bps but isn't particularly dovish and scales back the NZD jawboning, there's a case for an NZD/USD squeeze higher.