Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities, notes that the RBNZ has surprised the market by leaving the cash rate on hold at 1%.

“16 of 21 analysts were expecting a cut to 0.75% and OIS was ~75% priced for this outcome. We were one of the outliers. Rates were kept on hold because economic developments since the August statement did not warrant a change. The Bank indicated it is prepared to ease monetary policy further noting near term risks were tilted to the downside. On the forecasts, the OCR trough remained at 0.9%, GDP is expected to remain above 2%, the TWI was nudged lower and CPI lifted but a break above 2% not to be sustained. We sense there is no urgency from the Bank to cut the cash rate again anytime soon. We now pencil in the next RBNZ cut for May'20 and a placeholder cut for Q3/Q4'20. In the near term we expect NZ rates to underperform and the NZD to outperform. We have no curve positions on, but our models are telling us steepeners are the way to go.”