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June 2016

RBNZ on hold in spite of rate cut forecasts

Published: Thursday 09 June 2016

  • RBNZ on hold in spite of rate cut forecasts
  • Chinese inflation still poor
  • Soros is back in the game and very bearish

The President of the European Central Bank, Mario Draghi has pressed for tighter and more extensive Eurozone integration. In part of a speech which urged Eurozone members to do more to allow the ECB's bond buying and low interest rates to have a positive effect, he also set out a case for ever tighter monetary alignment between member states and that'll be viewed as another reason for Brexit by the 'leave' campaigners. Another ECB member, Benoit Coeuré says the central bank will be ready to stabilise the markets if the UK does vote to leave the EU. That's a bit of a leap into the dark but the sentiment is good. Sterling and the Euro have remained largely range bound for the time being.
We heard overnight that Chinese inflation was below forecasts and that has a negative impact on the currencies of the countries that supply China with its imports. However, the Reserve Bank of New Zealand managed to overshadow that - for the Australasian currencies at least - by ignoring calls for an interest rate cut and leaving their base rate on hold at 2.25%. Most analysts expected a cut to 2.0% but the RBNZ sees an improvement in the global outlook and decided not to act right now. I think we could all do with the same tint on the lenses of our glasses because the global economy looks as troubled as ever from my viewpoint and I see that the man who made a mint from the Pound's exit from the Euro's forerunner - the ERM, George Soros is trading again because he also sees trouble ahead.  That George is always nicking my ideas.
Nonetheless, the NZ Dollar strengthened sharply on the news and it is the strongest it has been for a year this morning. It also dragged the Aussie Dollar with it. Against the Pound, we are down to A$1.94 and NZ$2.02 this morning.
Of course Sterling is still in the Jetstream of the Brexit hurricane and, whilst it is a bit tedious to be writing about it every day, it is fascinating to see all the politicos scrabbling around looking for an angle. Sterling got a little fillip this morning when the trade deficit was narrower than had been forecast but the range is still tight. It is as though traders are stunned in the headlights of the approaching referendum and can't see outside the current range. There is another televised debate on the referendum tonight, so prepare to be edified, enlightened and entertained ...or not as the case may be.
In other news, a teacher will have to rethink their question setting skills. Viewed all over the internet, the question he/she set was 'Come up with an equation that is true when X = 7. (Be creative, you can make the equation as simple or as complex as you want)'. One student, who may in fact be a genius, gave the answer X = 7. He or she is dead right and has actually given the most appropriate answer to a poorly worded question but the teacher's response was "Really". Yes really.

Car deal

A teenage boy had just passed his driving test and broached the tetchy subject of using his father's car.
His dad said he’d make a deal with his son, “You bring your school grades up from a the Cs I saw on your last report and get to an average B level, study your Bible and get your hair cut. Then we’ll talk about the car.”
The boy thought about that for a moment, decided he’d settle for the offer, and they shook hands on it.
Six weeks later, the young man brought his school report to his dad and waited patiently while he read it. It was obvious what he was waiting for. His father said, “Well I have to say I'm impressed. You’ve brought your grades up and I’ve noticed that you have been studying your Bible – largely because you make a point of sitting right in front of me when you do so - but I’m disappointed you haven’t cut your hair.”
His son smiled and said, “You know, Dad, I’ve been thinking about that, and I’ve noticed in my studies of the Bible that Samson had long hair, John the Baptist had long hair, Moses had long hair, and there’s even strong evidence that Jesus had long hair.”
To this his father replied, “That is true but I'll tell you what is also true. Those guys walked everywhere.”

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
GBP 09:30 UK: Goods trade balance -11.2B -11.1B
CAD 13:30 Canada: NHPI m/m 0.2% 0.3%
USD 13:30 US: Unemployment claims 267K 269K
USD 15:00 US: Wholesale inventories m/m 0.1% 0.1%

FX Research by David Johnson
Daily Currency Analysis with William Busby 

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