"Directional signals for the NZD remain mixed as conflicting global forces (reflation and prospects for a turn in the liquidity cycle) weigh, and the USD oscillates. The localised story remains very NZD-supportive and needs to be acknowledged.

That said, we consider the interest rate market (and NZD) to be a little too aggressive in erring towards an OCR hike (with ~18bps priced in by September).

We expect the RBNZ to remain in a holding pattern until the first half of 2018. Given two false starts to the tightening cycle, having inflation near its 2% target and merely projected to get there is insufficient; the whitesof-the-eyes of inflation need to turn up.

Moreover, interest rates have already started to rise via the credit channel of monetary policy, which takes pressure off the RBNZ to follow suit. Tighter financial conditions flag a potential turn in New Zealand's economic credentials".

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