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RBNZ Monetary Policy Statement sees NZD higher as cash rate expectations push forward

Written by Sam Coxhead on June 9th, 2011.      0 comments

9:30 AM (NZT) The Reserve Bank of new Zealand just released their 9 June Monetary Policy Statement. As completely expected the cash rate remains unchanged at the emergency low level of 2.5%. The RBNZ projections of the  90 day track has risen , with the 90 day expected to be at 3.00% in December and this would indicate a 25pt hike by then.  This has pushed the short end interest higher and the NZD has appreciated accordingly, being driven by interest rate differentials. In the press conference Dr Bollard re-iterated that the cash rate peak will be lower than in previous cycles, by the recent increase in inflation expectations means that the progress of hikes has pushed further forward a touch. Dr Bollard also indicated that progress on the cash rate is going to be driven by the data going forward from here. Whether or not we see follow through in the currency from the current levels remains to be seen. At current levels we remain in the recent range of the last week, and given the overall market risk aversion this week , expect progress from here to be hard fought.
The press release of the statement has been copied below.
In offshore markets overnight the risk aversion seen in Asia after comments by US Fed Chairman Bernanke remained. US equity markets were weaker for the sixth consecutive session, The Benchmark US Treasury 10 year yield dipped to a recent low of 2.93% after its weekly auction and the OPEC meeting did not offer up the increased supply numbers expected. This all pointed towards risk aversion, but interestingly the gold price was lower on the day also. This points towards the discounting of a further quantitative easing program from the Federal reserve.
          Past 24 hours
  Current level Pre- RBNZ  % Chge since RBNZ   Low High
NZD/USD 0.8214 0.8149 0.79%   0.8143 0.8227
AUD/USD 1.0627 1.0623 0.04%   1.0589 1.0725
NZD/AUD 0.7729 0.7677 0.67%   0.7649 0.7742
AUD/NZD 1.2938 1.3026 -0.68%   1.2916 1.3074
NZD/GBP 0.5009 0.4970 0.78%   0.4966 0.5009
NZD/EUR 0.5632 0.5591 0.73%   0.5558 0.5636
NZD/JPY 65.66 65.13 0.81%   65.03 65.91
NZD/CAD 0.8047 0.7983 0.80%   0.7966 0.8060
Date    9 June 2011
OCR unchanged at 2.5 percent
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 has improved since the publication of the March Statement.
“Economic activity has been significantly disrupted by the Christchurch earthquake. However, while many firms and households – particularly within Canterbury – continue to be adversely affected, it appears the negative confidence effect of the earthquake on economic activity throughout the rest of the country has been limited.
“The early signs of recovery noted in the March Statement have continued. Despite some continuing signs of weakness in the world economy, commodity prices remain very strong and firms expect to increase their hiring and capital investment. Reconstruction in Canterbury is projected to add about 2 percentage points to GDP growth over 2012, and boost the level of activity for several years thereafter.
“Despite the strong outlook for export earnings, household expenditure is expected to grow only modestly. Household debt remains very high and is expected to constrain retail spending and the housing market for some time. Continued fiscal consolidation will also act to dampen activity.
“The New Zealand dollar has appreciated substantially over the past two months. This appreciation, supported by high export prices for primary producers, is negatively affecting other parts of the tradable sector, constraining rebalancing of the New Zealand economy.
“Headline inflation is currently being boosted by recent increases in indirect taxes, food and petrol prices, and surveyed expectations of future inflation have edged up. Despite this, indicators of capacity usage and core inflation suggest underlying inflation remains constrained.
“As GDP growth picks up, underlying inflation is expected to rise. A gradual increase in the OCR over the next two years will be required to offset this, such that CPI inflation tracks close to the midpoint of the target band over the latter part of the projection. The pace and timing of increases will be guided by the speed of recovery, but for now the OCR remains on hold.”