Dovish RBA on hold until 2024, RBNZ to hike in November?

RBA maintained their dovish stance overnight... There was a nod to the improvement in the economy and recovery in the labour market.

However...

Only notable difference is the removal of 2024 'at the earliest'. 

QE is reduced to A$4bln per week vs A$5bln previously.

Initial AUD reaction was negative, falling 30 pips before quickly recovering those losses ahead of the presser.

AUDUSD was already pushing on ahead of the meeting and now sits 0.75% higher on the day.

The press conference mentioned a wider range of plausible scenarios for the cash rate around the central scenario.

New Zealand is set to take a completely different path, especially after the NZIER survey showed a strong pickup in demand and confidence...

Both BNZ & ASB now expect the RBNZ to start hiking in November this year.

That puts them right up there with the Norwegian central bank and these two look set to lead the G10 currencies away from ZIRP.

NZD is up over 1% on the day vs USD.

Next RBNZ meeting is July 14th.

OPEC+ Scenarios (BBG)

The breakdown of OPEC+’s meeting on production levels has left the oil market in limbo. The immediate consequence is that an expected increase in output in August now likely won’t happen, leaving the world short of barrels as the economic recovery gathers pace.

The lack of unity within the alliance has also raised the specter of a repeat of last year’s price war when members pumped at will and sent oil prices crashing. The situation is still very fluid and it’s possible talks could be revived in the coming days. Here’s how analysts see things playing out.

UBS

With no more OPEC+ supply imminent, the oil market is likely to tighten further and that could result in Brent climbing to $80 a barrel by September, analyst Giovanni Staunovo said in a note. The alliance could still reach an agreement, given negotiations will likely continue among member states. It remains unclear if the failure to agree on a supply deal will translate into lower compliance rates next month. The release of Saudi Aramco’s official selling prices for August in the coming days should provide more clarity.

ING

If the group keeps output unchanged in August that should be bullish for prices, but the likelihood that members actually keep production steady isn’t very high, Warren Patterson, head of commodities strategy in Singapore, said in an interview. Members will probably start pumping more, and there will likely be a breakdown in the broader deal. There is potential for a price war like last year, but all involved will try to avoid that. A clear solution would be to separate the two elements of the deal: agree on the 2 million barrels a day supply increase for August to December, and then tackle the extension of the deal at a later date.

FGE

If there’s no increase in production, then oil at $85 to $90 a barrel is on the cards, Fereidun Fesharaki, chairman of industry consultant FGE, said in a Bloomberg TV interview. However, it’s likely some sort of compromise will be reached over the next one to three weeks, although prices are likely to rise until this happens. It’s unlikely that the United Arab Emirates will leave OPEC, but it wants more independence in policy making. With prices at these levels, there will probably be a lot more U.S. shale production coming back next year.

RBC Capital Markets

Although back-channel talks are reported to be continuing, questions about the UAE commitment to remain in OPEC will likely grow in the coming days, analysts Helima Croft and Christopher Louney said in a note. Since the launch of its Murban benchmark in March, there has been a distinct question mark over the durability of UAE’s OPEC membership and its willingness to continue idling its expensive spare capacity. This UAE-Saudi Arabian dispute appears to be more than about oil policy, with UAE seemingly intent on stepping outside the kingdom’s shadow and charting its own course in global affairs.

Rystad Energy

A no-deal that keeps output unchanged after July isn’t an outcome that any of the OPEC+ members want, oil markets analyst Louise Dickson said in a note. That may be raising expectations for an agreement that would satisfy the UAE a bit more. The market could see an immediate price correction if OPEC+ eventually agrees to increase output by well over 500,000 barrels per day in August. All eyes will be on potential leaks from behind-closed-doors unofficial negotiations. It could be a wild price ride in either direction.

Let's see how it pans out and if negotiations resume in the coming days, even if they happen behind closed doors.

Obviously, less production = higher prices.

But I see the probabilities shifting on the back of this disagreement.

Increasing production faster than was originally negotiated at this meeting (increase by 400k barrels per month) in exchange for an extension of the deal doesn't seem too far-fetched, especially when weighed against the alternative options.  

The idea that the OPEC+ alliance will fall apart seems a bit too Hollywood at this point, especially as countries will surely be tempted to increase their production at these prices anyway if no new deal is reached.

Far better to reach a deal and maintain stability throughout 2022, even if it causes prices to dip a little in the short-term?

This is a perfect visualisation of UAE's position/complaint.  

German ZEW & U.S. ISM PMI are the highlights on the calendar today.  

Major FX expiry options for today's NY cut

EUR/USD 1.1840 (494M), 1.1865-70 (1.1BLN), 1.1875-80 (945M), 1.1895-1.1905 (1.7BLN)

USD/JPY 109.60-70 (3.1BLN), 110.70-75 (605M), 111.00 (1.8BLN), 111.20 (715M), 111.50 (300M), 112.00 (573M)

GBP/USD 1.3900 (265M)

EUR/GBP 0.8475 (360M), 0.8600(250M), 0.8650 (426M)

USD/CHF 0.9240 (230M), 0.9290 (230M)

USD/CAD 1.2400 (416M), 1.2445 (230M)

AUD/USD 0.7500 (298M), 0.7620 (510M), 0.7640 (344M), 0.7650-70 (900M)Source: DTCC