Forex Market Review – NZ Tightens Policy
With the trading week nearly over, and with the Bank of Japan having released its policy statement today, it seems that not all central banks are moving in the same direction. This week’s volatility was focused on the New Zealand Dollar and the British Pound, as we learned that both central banks are heading towards tighter monetary policy.
The Reserve Bank of New Zealand raised the overnight cash rate by 0.25% on Thursday morning, taking the policy rate from 3.00% to 3.25%. The move was widely anticipated by analysts, however as noted in the lead-up to the release, the market was not pricing in the outcome with the NZD losing ground against the AUD. This positioning led to a powerful move in NZD based pairs, especially AUD/NZD – which fell one and a half cents over the trading day as the NZD felt strong buying pressure.
The move was accentuated by the release of the Australian employment data, which was a mixed bag. The unemployment rate stayed steady at 5.8% – with the market expecting a rise to 5.9% – however actual employment fell by 4,800. The fall was in part time workers, with a decrease of 27,000 against an increase in full time workers of 22,200. A rise in the unemployment rate was prevented partly by a fall in workforce participation, with the rate falling from 64.7% to 64.6%.
Early this morning, Mark Carney was speaking at the Annual Mansion House Dinner in London, and stated that a rise in the Bank of England’s policy rate “… could happen sooner than markets currently expect.”, as the central banker tries to balance strongly rising house prices with a sluggish economy. The pound reacted with a rally of over one cent to the news – interest rates have been held at 0.5% since 2009.
US data was weak on Thursday night, sparking a small rally in USD based pairs – unemployment claims increased more than expected, rising to 317,000 against expectations of 306,000. Retail sales also failed to impress, coming in barely positive at 0.1% for the Core Retail Sales figure and 0.3% for the Non-Core figure, against analyst forecasts of 0.4% and 0.5%, respectively. Traders are looking ahead to the FOMC statement next week for direction.
The Bank of Japan today released its policy statement – with data coming in on target there is no urgency to change the pace of the current program, so the Bank of Japan has held off on increasing the program this month.