BoE Climbs on Forbes Comments, NZD Sinks on RBNZ Rate Outlook
09 February 2017 by News DeskIndustry experts are forecasting the Reserve Bank of Australia (RBA) to try and talk the Australian dollar lower (known as jawboning) as it outperforms other currencies. Meanwhile the Reserve Bank of New Zealand (RBNZ) has announced it will be keeping interest rates on hold for at least another year which has caused NZD softness, say foreign exchange specialists FC Exchange.
New Zealand Dollar
The Kiwi dollar tumbled against other majors following the RBNZ stating that it envisaged interest rates remaining at record lows until mid-2018. The announcement caused positive sentiment in the commodity currency to decline as the central bank confirmed its views that inflation would only gradually return to target and the official cash rate (OCR) was therefore likely to remain at 1.75%.
RBNZ Governor Graeme Wheeler stated: ‘We think the market assessment has got a bit ahead of itself. Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.’
It was also announced this week that RBNZ Governor Wheeler wouldn’t be seeking a second term as chief. Deputy Governor Grant Spencer will take the reins for six months from September until a new Governor is appointed in 2018.
Wheeler said: ‘It’s been a great privilege to serve in this role, and in the remaining eight months I will remain fully focused on the economic challenges and opportunities facing the New Zealand economy.’
Wheeler was one of the first central bank chiefs to announce a rate hike in 2014 following the Global Financial Crisis (GFC). However, despite raising rates four times in quick succession, the RBNZ was forced to undo its attempts at tightening monetary policy in 2015 as inflation flat lined near 0.0%
Australian Dollar
Meanwhile, the Australian dollar is currently the best performer in the Group of 10 (G10) currencies worldwide. The Aussie dollar’s performance has been enhanced by an upswing in commodity values as well as promising signs that the Australian economy is improving. Additionally, some strength has been gained from indications that the rate of global economic activity is climbing.
However, the Reserve Bank of Australia is no stranger to jawboning in an attempt to pull the domestic currency lower. It’s expected that the RBA may try to weaken the Aussie dollar after several months of intimating that a strong AUD could ‘complicate’ Australian economic growth.
National Australia Bank (NAB) commented: ‘Recent history shows that when the AUD RTWI [real trade-weighted index] deviates from equilibrium on a sustained basis, then the RBA tends to become more vocal in its discomfort with the level of the currency and rate cuts have also followed shortly thereafter.’
NAB also predict the Australian dollar will hinder economic progression next year, saying: ‘The currency is likely to become a drag on growth in 2018 just at a time when we expect current growth engines of housing construction and mining exports to wane.’
Pound Sterling
The UK looks set for a hard Brexit after MP’s voted 494 to 122 in favour of the Article 50 bill. It’s now set to pass through the House of Lords before Article 50 can be officially triggered. Brexit secretary David Davis stated the result was ‘a big majority for getting on with negotiating Britain’s exit from the EU and a strong new partnership with it’s member states.’
Meanwhile, Bank of England (BoE) Monetary Policy Committee (MPC) official Kristin Forbes broke ranks to suggest rates could rise soon, giving a much needed boost to the pound following it’s heavy Brexit-fuelled depreciation. Despite the BoE insisting that it is in no rush to hike interest rates, Forbes caused market movement as she spoke in Leeds saying that there was tentative evidence that inflation was recovering quicker than anticipated.
Forbes added: ‘In my view, if the economy remains solid and the pick-up in the nominal data continued, this could soon suggest an increase in Bank Rate.’
Investors in the pound will be looking forward to the NIESR UK gross domestic product (GDP) estimate due out on Friday. Also released in Friday’s trading will be UK trade balance numbers, as well as industrial production, manufacturing production and construction output data.
US Dollar
US dollar movement could be quite prominent on Friday with the release of the University of Michigan Confidence February figure. Economists have forecast a decline in the second month of 2017, to fall from January’s 98.5 to 97.8. Any reading below predictions could weigh heavily on the greenback.
Canadian Dollar
There’s the possibility of some significant movement on Friday from the Canadian dollar with the release of Canadian unemployment rate and net change in employment figures. It’s anticipated that the unemployment rate will remain at 6.9% while the net change in employment reading will show a contraction of -5.0k.
Disclaimer: This economic update is provided by FC Exchange a Global Reach Group Company, industry leaders in foreign exchange. Authorised affiliates are permitted to reuse content.
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