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April 2016

RBNZ on hold but June rate cut is still possibility

Published: Thursday 28 April 2016

  • RBNZ on hold but June rate cut is still possibility
  • Federal Reserve on hold and tone is dovish
  • US GDP decline forecast  
As mentioned in yesterday's late report, the UK economic growth data wasn't as bad as expected and, in real terms, it is much better than many countries around the globe. Hence, Sterling rallied a little on the news but the Pound is struggling to break above EUR 1.29 and USD 1.46 and has been stalled at that crossroads for a couple of days.
 
The US Federal Reserve did as was expected and left the US base rate on hold when they met late yesterday. They remain dovish and bets on early interest rate hikes were unwound after the statements “economic activity appears to have slowed” and “growth in household spending has moderated” appeared in the statement that accompanied the announcement. With US GDP data due this afternoon, traders were understandably muted in their response to the Fed but this data is expected to be quite poor. A slowdown in the rate of US economic activity is perhaps inevitable but the pace of that decline is the key to the US Dollar's activity in later trade. The GBPUSD rate is bumping its head on $1.46, so a break to higher levels would be very significant but, if the data is at the 0.5% quarterly growth rate that has been forecast, I suspect the Pound will be pushed back down to the $1.43 level.
 
Another central bank was in the news last night. The Reserve Bank of New Zealand didn't trouble the bookies. They left the base rate on hold and the NZ Dollar strengthened a little on that news because the only alternative was a possible interest rate cut. The RBNZ put that idea off for now but didn't discount it completely and a June rate cut is still a possibility.
 
This morning will start with German inflation data and that is expected to be as flat as a very flat thing with a puncture. In fact, more likely is a slightly deflationary number but it won't have any kind of impact because none in the western economies are experiencing significant inflation. The Eurozone inflation data tomorrow should confirm that with similarly dead numbers.
 
And that is about all I have to say about today and I hope you are impressed that I managed to cover it all without mentioning the word Brexit...Doh!
 

The fire crew

 
A fire broke out at a chemical plant and two fire crews attended. The owner of the business was on hand fretting about the secret formulas that he hadn't yet patented. "They are in the safe in the office right in the centre of the plant," he cried out. "The fire crew that brings me the contents of the red safe will get £50,000 to share".
 
The crews all got that message loud and clear and started working furiously to staunch the flames but they weren't wining. They called in reinforcements and another fire crew arrived. The business owner repeated his offer at the top of his voice but doubled the reward to £100,000 to the crew that could deliver the contents of the red safe to him. 
 
Just then, a dilapidated Dennis Fire truck came screaming down the lane to the factory but it doesn't stop with the other engines, it whizzes past them and straight into the flames. The crew members all leap out in different directions and have their hoses deployed in seconds and within a few minutes of intense activity the flames are under control. They still have the hoses on when the business owner runs into the area and, using gloves to protect his hands from the heat, he opens the safe and takes out his precious documents.
 
He turns to the senior crew member standing by the old appliance and shakes his hand vigorously. "That was so brave," he says. "Your guys worked like demons. I am so delighted to have my life's work safe and well that I will double my offer again and your crew can share £200,000."
 
There are smiles all around as he says this and the crew give three cheers for the man. "So," says the business owner to the chief, "what are you going to spend your share on?"
 
He lets out a huge sigh and puts his hands on his hips as he says, "Well the first thing I am going to do is get those damned brakes fixed."
 

Today's Major Economic Releases

 
Market BST Data/Event Previous Expected
USD 13:30 US: Advance GDP q/q 1.4 0.7
USD 13:30 US: Unemployment claims 247 258
USD 13:30 US: Advance GDP price index q/q 0.9 0.5
NZD 23:45 New Zealand: Building consents m/m 10.8 10.8

Daily Currency Insight and David Johnson

Daily Currency Analysis with Michael Hart

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