Westpac and ASB have published opposite forecasts for Thursday's Reserve Bank of New Zealand Q3 Survey of Inflation Expectations. Westpac expects near-term readings to rise further on oil-driven inflation, while ASB expects a broad easing but flags upside risk from the elevated Q2 headline print. The outcome will shape how markets price the RBNZ's tightening path and the New Zealand dollar.
Two of New Zealand's major banks are reading the same inflation backdrop and reaching opposite conclusions about what Thursday's data will show. The RBNZ's Q3 Survey of Inflation Expectations is due Thursday, with the two-year-ahead measure, the central bank's preferred gauge of anchored expectations, last printing at around 2.5%.
Westpac and ASB split on the outlook
Westpac expects the survey to show another rise in the one and two-year-ahead expectations, pointing to large swings in oil prices as a reason. It also points to headline inflation climbing back to 4.1% as a further reason. The bank sees the risk less in the current print itself than in a broader shift in pricing behaviour taking hold. Westpac does expect the five and ten-year expectations to hold steady, however, reasoning that the RBNZ's tightening cycle already underway should keep those further-out anchors in place.
ASB takes the opposite view on the headline direction. The bank expects a broadly easing set of readings, citing retail fuel prices well off their mid-April peak and softer signals from higher-frequency pricing and expectations surveys. Still, ASB flags upside risk to the Q3 print from the elevated Q2 headline inflation figure, and its own models suggest medium and longer-term expectations could drift higher. ASB's Q2 reference points were one-year expectations at 3.4%, two-year at around 2.5%, and five and ten-year both at around 2.2%.
What it means for the tightening path and the kiwi
A stronger-than-expected print, in line with Westpac's call, would reinforce the case for the RBNZ to stay on its 25 basis point hike path and would likely support the New Zealand dollar, including on the AUD/NZD cross, on expectations of a higher terminal OCR. A softer outcome closer to ASB's base case would ease pressure on the central bank without closing the door on further hikes, given ASB's own flagged upside risks.
ASB expects the RBNZ to keep affirming its inflation-fighting credentials with steady 25 basis point hikes, taking the OCR to 3.25% by year end. The bank frames that as a central case rather than a fixed outcome: the OCR could peak lower if spare capacity dampens wage and pricing pressure. It could also peak higher if inflation expectations decouple from the 1-3% target band. Either way, the medium and long-term expectation readings will carry outsized weight for how markets price the eventual OCR peak.
Source: InvestingLive
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