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August 2016

RBNZ rate cut imminent

Published: Wednesday 10 August 2016

  • RBNZ rate cut imminent
  • RBA says low inflation with economic growth is acceptable
  • Sterling takes a hit from data and BOE QE failure

Sterling slipped on Tuesday as it emerged that the Bank of England’s new bond buying plan hit an early snag as pension funds and insurance companies declined to sell gilts to the central bank. Their target of £70 billion was being questioned when they attempted to buy £1.17 billion yesterday but only managed to secure £1.12 billion in bonds. One BOE member was suggesting further QE would be necessary but saying and making it happen appear to be very different prospects. If they really want to inject some life into the UK economy, I still think they should give shopping vouchers for British goods to the people and not to big institutions. That £70 billion would be £1,000 each for every man woman and child in the UK and would definitely put a few points on the GDP figure. 
Oddly, Sterling’s fall yesterday came in spite of some of the best industrial output growth in this century. However, the weak Pound hasn’t yet had an impact on international trade. The trade deficit widened in June but a declining GBP will slow that to some degree.  And the National Institute of Economic and Social Research suggested that the UK economy slowed markedly in the three months to July. Anyone surprised? I thought not. The BOE is having an unscheduled press conference this morning which we presume is about their little QE problem.
There are worrying signs of a weak Canadian property market after new housing data showed a slowdown in June. The GBPCAD exchange rate is a little above July’s lows but remains in a downward trend that started in early 2016.
New Zealand house prices continued to rise in July but the volume of sales slowed quite sharply. The New Zealand Dollar was largely unmoved by the news but remains very strong against the Pound after testing a 3-year low in early July. Support is strong around NZ$1.77 but there are still worrying times ahead for Sterling. Overnight tonight we will see whether the Reserve Bank of New Zealand attempts to weaken the NZD and keep the NZ economy bubbling along with a 25 basis point rate cut. So many analysts are pointing to the cut that it must already be priced into the NZD’s value. However, the fact of the decision will most probably elicit further NZD strength. Beware if you are a NZD buyer.
The Governor of the Reserve Bank of Australia has warned that we must be realistic on what monetary policy can do. This comes after a 25 basis point rate cut last week. He added that undershooting the Bank’s inflation target but with reasonable growth maybe the least bad option for the time being. The Australian Dollar remains strong against the Pound and is hugging the low level we last saw in late 2013.
In Europe, the ZEW institute ran a Federal Reserve style stress tests on 51 European banks. The results were quite alarming. The tests highlighted a capital shortfall of €123 billion across those 51 banks. That’ll send shivers up the spines of the ECB members but hadn’t been factored into the Euro just yet.
I am loving the note left by one American mother to her children in her cunning ploy to get the kitchen cleaned. The note reads, ‘Today’s Wi-Fi password can be unlocked by texting a picture of a clean kitchen to mom. Said photograph must contain a box of crackers on the counter by the stove (to prevent re-using of previous photos). Thank you for playing. May the odds be forever in your favour. Love mom.’ The woman is a genius. 

Call mum

Charlie is staying over at his friend’s house overnight and calls his mum before bedtime to say goodnight.
“Have you been good?” asks his mum.
“Well yes,” says Charlie, “but I did throw a ball in the lounge and broke a lamp.”
“Oh my goodness,” says his mum. “Can you put Tommy’s mum on the line so I can offer to pay for it?”
“You don’t need to do that.” Says Charlie. “She said it was priceless.” 

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
USD 15:00 US: JOLTS job openings 5.50m 5.52m
USD 15:30 US: Crude oil inventories 1.4m -1.3m
USD 19:00 US: Federal budget balance 6.3b -129.9b
NZD 22:00 RBNZ official cash rate 2.25% 2.00%
NZD 22:00 RBNZ rate statement    
NZD 22:00 RBNZ monetary policy statement    
NZD 22:00 RBNZ press conference    

FX Research by David Johnson

Daily Currency Analysis with Chris Verdet

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