In mid-morning trade the Aussie was fetching US69.63¢, compared with around US70.20¢ at the start of the local session, and before the Reserve Bank of New Zealand cut the official cash rate for the third time in three policy meetings.
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“It is that even with good jobs growth, wages growth has failed to accelerate”.
The kiwi tumbled “less on the rate cut, which was universally expected, but the surrounding rhetoric and Wheeler comments”, Ray Attrill, co-head of currency strategy at National Australia Bank Ltd.in Sydney, said by instant message. With the policy rate still at a relatively high 2.75%, the RBNZ governor Graeme Wheeler said there was still “plenty left in the tank” if the outlook for inflation didn’t improve. “ANZ, like everyone else, is anticipating a 25 basis points cut to 2.75 per cent, but suspects the market may be disappointed by a less dovish tone than expected when it comes to future moves”. “This will depend on the emerging flow of economic data”.
In that event the Reserve Bank could cut the benchmark interest rate to a new low of 2 per cent, a statement from the bank suggested yesterday. The problem is no one knows what to look for moving forward.
While the lower exchange rate supports the export and import-competing sectors, further depreciation is appropriate, given the sharpness of the decline in New Zealand’s export commodity prices.
“Consequently, we expect further monetary policy stimulus will be needed”.
Digging into the detail, Alexander provides a list of reasons why traditional forecasts have been wrong.
No forecasts have been made, but a rise in the price of food, while disadvantageous for consumers, could increase inflation and give cause for consideration for slash-happy policymakers like Wheeler.
Businesses, particularly in the U.S. and Europe, are less willing to undertake capital expenditure.
The NZ dollar fell to more than a 2-week low of 1.7966 against the euro, from yesterday’s closing value of 1.7503. “This has not materialized, as net migration reached a new record in June”, DB clarifies. Based on today’s minutes, the result is too close to call, although obviously bullish estimations will be of greater benefit to Sterling than bearish ones.
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Increasing globalisation means shocks in individual economies are more likely to be transmitted with greater impact to other economies.
