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RBNZ cash rate announcement and offshore market action

Written by Sam Coxhead on April 28th, 2011.      0 comments

9:15 AM (NZT) The RBNZ just left the cash rate unchanged at 2.50% as was widely expected. The press release is copied below and to my mind the crucial part of it remains then last line which I have highlighted, “the current level of the OCR is likely to remain appropriate for some time.” 
The NZD has seen selling pressure since the announcement, and this may continue , especially against the AUD as reports from well connected Australian reporters comment on the prospect of a further hike from the RBA in August or October after yesterday’s higher than expected inflation number.
Date 28 April 2011
The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 2.5 percent.
Reserve Bank Governor Alan Bollard said: “The outlook for the New Zealand economy remains very uncertain following February’s Christchurch earthquake.
“As was expected, business confidence, consumer spending and tourism activity all declined sharply following the earthquake. The OCR was cut as insurance to help limit these adverse effects. Confidence and consumer spending have since shown signs of recovery, but many firms and households remain adversely affected in Christchurch. To date, activity in the rest of the country appears relatively unaffected, with housing market turnover and business investment beginning to increase.
“Trading partner growth remains robust, helping push New Zealand’s export commodity prices higher. Along with relatively favourable climatic conditions, the improved price outlook is supporting a pickup in on-farm investment. Higher oil prices and the elevated level of the New Zealand dollar are both unwelcome. They will have some dampening effect on economic activity.
“Headline inflation is currently being boosted by recent increases in indirect taxes. Annual inflation is expected to settle comfortably within the target band once these tax increases drop out of the annual rate.
“Given the outlook for core inflation and continued economic disruption stemming from the earthquakes, the current level of the OCR is likely to remain appropriate for some time.”
Meanwhile overnight UK GDP came in bang on expectations at +.5% for the quarter after rumours of a weaker number did not eventuate. This has seen the GBP make a bit of a comeback that will please those looking to make money transfers from the UK.
The US Federal reserve concluded its two day meeting with announcements that did not surprise the market at all. The comments were measured and were indicative of being further down the road to recovery. The Fed have slightly lower their economic growth forecasts for 2012 and 2013, while slightly increasing the inflation forecasts. It seems like the prospect of a further Quantitative Easing program is all but over.  Bernanke did re-iterate that inflation remains subdued for the time being with most pressure coming from the oil price that the Fed expect to moderate over time. Since the announcement and subsequent press conference, commodities have recovered from their lows seen on profit taking pre-announcement and  rallied, with gold reaching an new all time highs. Stocks have also rallied with the Nasdaq hitting 10 year highs. Correspondingly the USD is under pressure and currencies have all rallied with the AUD/USD again setting post float highs, this time at 1.0879.
          Last 24 hours trade
  Current level Pre-RBNZ Chge since RBNZ   Low High
NZD/USD 0.8035 0.8072 -0.5%   0.8004 0.8106
AUD/USD 1.0876 1.0873 0.0%   1.0778 1.0879
NZD/AUD 0.7389 0.7426 -0.5%   0.7424 0.7493
AUD/NZD 1.3533 1.3466 0.5%   1.3346 1.3470
NZD/GBP 0.4830 0.4855 -0.5%   0.4839 0.4904
NZD/EUR 0.5435 0.5462 -0.5%   0.546 0.5514
NZD/JPY 66.03 66.31 -0.4%   65.60 66.38
NZD/CAD 0.7633 0.7673 -0.5%   0.7646 0.7703