The Reserve Bank of New Zealand left interest rates unchanged in its decision last night, leaving the overnight cash rate steady at 3.5%. The Kiwi Dollar saw a short term rally across the board, including the Greenback as the Central Bank pledged to keep monetary policy steady for a considerable period of time, ruling out any changes in the near term. The markets read this to be as a steady policy at least until Q2 of this year.
The RBNZ however kept its dovish statement on the New Zealand Dollar’s exchange rate calling it “unjustifiably high and unsustainable” and called for a “substantial downward correction” in the exchange rate and noted that it was required to ensure the sustainability of the economic momentum.
In regards to inflation expectations, the RBNZ noted that it expects the CPI to remain low and could possibly dip lower to zero within the quarter, but that the Central Bank stands by its 2% inflation target commitment.
In terms of the forward guidance, the RBNZ noted that decisions would be taken based on the economic flow of data.
With the overall outlook among Central Banks being dovish, the markets were expecting to see a more dovish statement, but given that the RBNZ’s monetary policy statement was more neutral, the Kiwi staged a modest rally, recovering most of its losses from yesterday. The NZDUSD managed to lift off from the lows of 0.72 from yesterday to trade currently at 0.732, while AUDNZD weakened considerably, reversing from highs of 1.05 to trade at 1.038 levels at the time of writing.
Technically, however, the NZD remains a bearish currency and the short term strength across the board is being seen more of a retracement to the larger downtrend in play.
The Australian jobs report was released earlier today, which beat expectations. Unemployment changed was at 15.6k above 15.3k estimates while unemployment rate improved to 6.3% against a consensus expecting the unemployment rate to remain unchanged at 6.4%. However, the Aussie could only rally so much as the currency was weaker especially against the Kiwi Dollar. But as the day progresses, we should be able to see the Aussie regain its momentum to push higher against weaker currencies.
The main threat to both the Aussie and the Kiwi dollars come from today’s retail sales data from the US, which hasn’t been that impressive in recent months. Consensus expects to see retail sales pick up to 0.6% after declining -0.9% on the core and a pick up to 0.3% from -0.8% decline previously on the headline. Also impacting these commodity risk currencies will be the weekly jobless claims data.
Regardless of the outcome of the above two economic data from the US, the markets are clearly focusing on the FOMC statement due next week (March 18) in anticipation that the Federal Reserve will remove the “patient” language from its statement and prepare the markets for either a June or a September rate lift off, which would be bearish for the AUD and the NZD. In this aspect, both these currencies remain a sell on rallies.
