Softer Australia CPI while RBNZ statement appears more positive
RBNZ kept rates unchanged at 2.5%, as widely expected, but the statement was more upbeat on the domestic economy, propping the NZDUSD to a high of 0.8458. Notably, RBNZ expects to keep OCR unchanged through the end of the year. There was continued jawboning on the NZD currency strength – “NZD overvalued, boosted by Japanese policies”. Nevertheless, we believe the accelerating global QE (led by the Fed and BoJ) will limit the downside in commodity currencies (see chart). In Australia, Q1 CPI printed weaker than expected — headline CPI at 2.5% YoY (consensus 2.8%). The main measures of underlying inflation averaged only 1.6% QoQ annualised, the lowest readings over the past decade, raising expectations of a rate cut in May’s RBA meeting (our economist’s call). But with the AUD OIS market already pricing in more than two RBA rate cuts over the next twelve months, the risk is biased towards RBA keeping rates unchanged. Meanwhile, our BNP Paribas STEER short-term valuation model suggests AUDUSD is oversold relative to fundamentals. Consequently, we have initiated an AUDUSD long trade recommendation at 1.0265 yesterday, targeting a move back to the ‘fair value’ of 1.0445, with a stop at 1.0175. Elsewhere in commodity currencies bloc, we remain short USDCAD from 1.0270, targeting 0.9935. BOC Governor Carney reiterated yesterday that the next policy move will be to higher rates. We have issued a EURNOK sell trade recommendation at 7.6800, targeting a move to 7.4945 with a stop at 7.7700.
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