NZD Update – Forex Trading Tips

New Zealand still has the highest interest rate of all major currencies, as such there is a lot of room downward to close the gap with other economies if the data calls for it. We remain bearish on the NZD in the medium term.

NZD Update:

Interest Rate

Official Cash Rate: 2.75%

Last Change: September 10, 2015 (2.75%)

Expected Future Change: Hold (October 28)

Next decision: October 28

Inflation

Inflation Target: 2% (1-3%)

Period: Year ending June 30

CPI: 0.3%

Core: 1.0%

Next Release: October 6

Employment

Period: Q1

Employment Growth: 0.3% Expected: 0.5%

Unemployment Rate: 5.9% Expected: 5.9%

Labour Cost Index: 0.5% Expected: 0.5%

Next Release: November 3

Growth

Period: Q1

GDP: 0.2% Expected: 0.6%

Next Release: September 16

Analysis

The RBNZ cut interest rates again at the September 10 meeting, decreasing the official cash rate to 2.75% as was widely expected. This was the third 25 basis point reduction in the OCR this year. The RBNZ said the cut was warranted by the softening of the economy and the need to keep future average inflation near the 2% midpoint of its inflation target range. It said that some future easing seemed likely but will be data dependent. Several major investment banks are expecting more interest rate cuts this year. Recent global uncertainty stemming from China and weak commodities has also continued to pressure the Kiwi due to New Zealand’s close economic ties to Australia. ”Concerns about softer growth, particularly in China and East Asia, have led to elevated volatility in financial markets and renewed falls in commodity prices.” There is also considerable uncertainty about when, and what type of impact an expected Fed tightening cycle will have on the financial markets.

Gross domestic product for the first quarter missed expectations by 0.4% and showed growth of only 0.2% for the first three months of 2015. Another brush-stroke to bearish NZD picture was CPI for the second quarter which showed a mere 0.3% increase for the year ending June 30. This comes after a meagre 0.1% for the year ending March 30. On the labor front, the unemployment rate increased to 5.9 percent in the June 2015 quarter (up from 5.8 percent). At the same time, there were 7,000 more people employed over the quarter (up 0.3 percent). Even though employment grew over the quarter, population growth was greater, which resulted in a lower overall employment rate. This was the eleventh consecutive quarter of employment growth, making it the second-longest period of growth since the period between 1992 and 1996.

In a speech on July 28th RBNZ Governor Wheeler repeated that the Kiwi needs to depreciate further and that more easing is likely, however he also stated that the NZ economy is not so weak as to warrant large rate cuts, as many banks have been predicting. He said only a recession would warrant large cuts in rates.

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Source:: NZD Update – Forex Trading Tips

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