Forex Flash: NZ inflation concerns allayed after RBNZ statement – UBS

Although New Zealand inflationary pressures are subdued, the central bank is increasingly concerned about surging regional house prices and household credit growth. Thursday's policy statement made that very clear, and RBNZ Deputy Governor Spencer has already floated the idea of deploying macro-prudential tools to prevent house price bubbles.

According to Research Analyst Gareth Berry at UBS, “The parallels with the Canadian experience over the past year are becoming increasingly evident, although the RBNZ also has to contend with inflationary pressures arising from the earthquake-related rebuild of Canterbury.”

Meanwhile in Australia, the mining investment boom has peaked as the February 28th capex intentions report is likely to confirm, leaving a question mark over where future growth will come from. Adding to this uncertainty, a federal election has been called for September 14th, three days before RBA Governor Stevens' term of office ends. Our option structure captures this period of transition, which is likely to boost FX volatility in the AUD/NZD in particular.