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May 2017

NZ Dollar struggles after Reserve Bank of New Zealand holds rates

Published: Thursday 11 May 2017

  • NZ Dollar struggles after Reserve Bank of New Zealand holds rates
  • Markets await Bank of England interest rate decisions
By William Busby
The New Zealand Dollar depreciated against its major counterparts after the Reserve Bank of New Zealand (RBNZ) held rates unchanged in May as widely expected. While that was priced in, recent positive economic news flow out of the nation has helped build interest rate hike expectations. In particular, the unemployment rate fell to 4.9% in the first quarter and Consumer Price Index (CPI) reached 2.2% year-on-year in the fourth quarter of 2016. The central bank practically dismissed those hopes, mentioning recent CPI gains as temporary. Central Bank Governor Wheeler stated that wages had not risen significantly and that he did not see inflationary pressures as being a concern. He stated that the RBNZ remains neutral and that interest rates should stay at current levels for the foreseeable future.
The Pound will be in focus this morning, with the release of the May quarterly inflation report and the Monetary Policy Committee’s (MPC) policy decision. Analysts expect policy to remain unchanged, however, there is growing chatter that another member of the MPC may vote for a hike in rates. A 6-2 vote would not be a surprise, with Saunders expected to have joined Forbes in voting for a hike. Consumer Spending and Gross Domestic Product (GDP) data have been disappointing, however, recent Purchasing Managers’ Index (PMI) data has been encouraging, helping Sterling along, which has been gently squeezing higher since the call for a snap election. If the Bank of England is remotely hawkish in the press conference, expect Sterling to continue its rise.
Later this afternoon, there is a smattering of US data, including Producer Price Index (PPI) and Jobless Claims, which are unlikely to be market moving. Attention will then turn to tomorrow’s important retails sales data.


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