Once again, thanks to our hedge fund insider in the FXWW chatroom for posting the following information from WestPac.

The Reserve Bank of New Zealand increased the cash rate to 3.00%, as unanimously expected by economists and financial markets. In its statement, the RBNZ reiterated the main message that the OCR is set to rise over the next couple of years. Also as expected, the press release acknowledged two important downside developments since the March MPS: (1) The RBNZ said export commodity prices remain very high, but it acknowledged that auction prices for dairy products had fallen 20% recently. (2) The high exchange rate seemed to shift higher in importance. The bias sentence this time was “The speed and extent to which the OCR will be raised will depend on economic data and our continuing assessment of emerging inflationary pressures, including the extent to which the high exchange rate leads to lower inflationary pressure.” By comparison, back in the March MPS the exchange rate was not mentioned in this context. However the RBNZ’s acknowledgement of recent low inflation outturns was quite low key. It reiterated that headline inflation is moderate now, but inflationary pressures are increasing. This was enough to spark a bounce in NZD/USD from 0.8585 to highs above 0.8620. Our expectations for the OCR have not changed. We are forecasting further hikes of 25bps each in June, July, and December this year – although we admit that the July hike is a very close call. Markets are also divided on July, currently priced at 3.34%.