The NZDUSD opens lower at 0.7197 this morning.
The NZD sold off late yesterday afternoon after the Reserve Bank of New Zealand surprised the markets when it announced it would give an update on its economic outlook on 21st July. This previously unscheduled update is 3 weeks before the next RBNZ Official Cash Rate (OCR) decision on 11th August. The Cash Rate is currently 2.25%.
It has been speculated the RBNZ is unhappy with the current strength of the NZD and also with low level of pricing of a near term interest rate cut. The NZD Trade Weighted Index (TWI) is 76.64 (and was close to 78.00 immediately prior surprise announcement). The RBNZ is forecasting the TWI to be around 70.00 within the next 12 months. Given NZ interest rates are high when compared to other western nations, it is difficult to see this forecast being realised without further reductions in interest rates.
The AUD strengthened after data showed a promising increase in full-time jobs, although the markets are still anticipating a further reduction in interest rates by the Reserve Bank of Australia. Their Cash Rate is currently at 1.75%.
The NZDAUD fell sharply to a 1-month low of 0.9405, from 0.9570, in response to the above influences. The rate was almost at 0.9700 a week ago.
In other news, the Bank of England refrained from cutting interest rates overnight, despite market expectations to the contrary, however they did signal they are prepared to cut next month. Their Cash Rate equivalent is 0.50%.
The USD rose and JPY weakened on the belief the Japanese Government may introduce a JPY 10 trillion stimulus package and the Bank of Japan ease monetary conditions further. This stimulated positive sentiment towards ‘risk assets’ such as global equities.
There is no data scheduled on the domestic calendar today.
Chinese GDP, Retail Sales and Industrial Productions numbers will hit the tapes this afternoon have the potential to cause some market volatility.
Global equity markets mostly posted solid gains on the day – Dow 0.7%, Nikkei +1.0%, Shanghai -0.2 %, FTSE -0.2%, DAX +1.3%
Gold prices dropped by 0.7% to USD$1,333 an ounce. Oil prices (WTI) is current trading at USD$45.60 per barrel.
Current indicative rates:
NZDUSD 0.7197 -1.0%
NZDEUR 0.6472 -1.2%
NZDGBP 0.5394 -2.5%
NZDJPY 75.87 -0.1%
NZDAUD 0.9430 -1.4%
NZDCAD 0.9278 1.7%
Upcoming Data releases (NZST):
- No NZ data released scheduled today
- 2:00pm Chinese GDP, Industrial Production, Fixed Asset Investment & Retail Sales
- US CPI, Retail Sales Industrial Production, Capacity Utilisation, Consumer Sentiment, amongst others will be released overnight.
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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here »
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