RBNZ to cut key rate further on China risks

New Zealand's most important trade partner is China where economic developments look a lot less encouraging. That means mainly one thing for the RBNZ: it has to bank even further on a weak NZD so as to compensate for weaker demand from China as well as falling commodity prices, particularly for agricultural products (its most important export good). Therefore,  a further RBNZ rate cut is likely tonight, foresees Commerzbank. In the end to what extent NZD will ease in future depends largely on RBNZ comments on the exchange rate. So far it had pointed out in its statement that further NZD depreciation is necessary to cushion the effect of low commodity prices. 

"On the one hand NZD has already eased considerably against USD and on the other hand it can hope that NZD-USD will continue to ease without it having to intervene once the Fed initiates its rate hike cycle. However, if the RBNZ does not want to rely on that, or if it considers the downward risks for the economy and inflation due to developments in China to be very high it is likely to continue to try and weaken NZD verbally. We would therefore advise against going into the meeting on NZD longs", says Commerzbank.