U.S Downgrades Growth
The U.S Federal Reserve last night downgraded both the economy and the outlook for the labor market in the monthly policy statement which now reduces expectations of any hike in the OCR (Official Cash Rate) until the third quarter. The market had been expecting a hike in rates by June of this year with the end of Q.E., an unemployment rate sitting at 5.5, and a rewording of recent policy statements.
The Fed’s statement did indicate that it would be a month by month review of incoming economic data that would determine its timing on a rise in rates, its first since June of 2006. With a worsening economic picture however in recent times, an example of which was U.S. GDP released the day before coming in weaker than expected reinforces their HOLD posture for the time being.
If the U.S. Dollar is anything to go by, the Fed Statement was telling us what the interest rate decision was going to be and the speech afterwards, as the U.S Dollar index lost 5% over the last 2 weeks. The AUD-USD had been range bound for the last 3 months and this came to an explosive end on Wednesday as the Australian Dollar rallied more than 2% after the weaker than expected GDP reading.
RBNZ keeps rate on hold
The RBNZ kept rates on hold today at 3.5%, which was in line with market expectations. Assistant Governor McDermott on Thursday of last week gave an indication of what Graeme Wheeler’s speech would be post rate decision when he spoke to the Chamber of Commerce in Hamilton. He spoke about ‘’remaining vigilant with price setting’’. He said the RBNZ is ‘’not considering any increase in interest rates at present ‘’. The canary in the coalmine, though, was when he indicated ‘’weaker demand and prices would prompt a RATE CUT CONSIDERATION, and how rising currency as export prices fall is UNWELCOME”.
Graeme Wheeler, the head of the RBNZ’s, speech this morning after the interest rate decision was give or take word for word. The reaction by the NZD was immediate and swift and is currently up another 1% against the Aussie Dollar in early trading after adding nearly 4% after assistant Governor McDermott’s speech.