AUD and NZD: RBNZ to cut further - Australian CPI in focus

The RBNZ decides on interest rates next Thursday and a further 25bp rate cut is expected to take the cash rate to 3%. 

With underlying inflation remaining well below the 2% target and the outlook for growth weaker due to lower export prices, we now expect an additional two 25bp cuts in September and December. This would reverse all of last year's rate hikes and return the cash rate to its record low of 2.5%. We acknowledge that this is an aggressive call given that the exchange rate has started a rapid slide, but it is consistent with the estimates from our rough Taylor rule, says Barclays

The consensus is also for a 25bp rate cut in July and the market is pricing in some risk of a 50bp rate cut

In Australia, the RBA does not have the problem of underlying inflation persistently missing the target. Underlying inflation has been tracking near the midpoint of the 2-3% inflation target and a similar result is expected in Q2. 

We expect the headline CPI to accelerate to +0.9% q/q (consensus: +0.8%) from +0.2% in Q1. With regards to underlying inflation, we look for Trimmed mean CPI to rise +0.7% (consensus: +0.6%), Weighted median to rise +0.7% (consensus: +0.5%), and ex-volatile items CPI to rise +0.7%. RBA Governor Stevens is speaking on "Issues in economic policy" shortly after the release of the CPI, added Barclays.