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FX News

The Reserve Bank of New Zealand has left its Large Scale Asset Purchase Program, at NZD $100B Wednesday, while keeping the cash rate unchanged at 0.25%. The RBNZ said in their statement they will maintain its stimulatory policy until inflation is sustained at the 2.0% target point. The work required to accommodate negative rates is now done although the RBNZ is very unlikely to cut rates again in this cycle. Having said that the RBNZ is willing to add further stimulus if required but it looks increasingly like a long shot that it will be necessary. Increases to the cash rate look to be a long way away possibly late 2022 depending on inflation as mentioned. From now over the following months, the RBNZ spoke of uncertain times ahead, relative to how the global community reacts and recovers based on coronavirus vaccine rollouts. 

New Zealand House prices have been added to the RBNZ Central Bank remit and now must be taken into account during monetary decisions, Finance Minister Grant Robertson reported. The RBNZ will take into account the NZ Government’s objective of providing affordable housing, including efforts to lower demand for existing housing. Recent extremely low interest rates and cheap money have fuelled a flood of buying to date. On the 31st of March the LVR (Loan to Value) restrictions to property buyers come into effect to make obtaining credit more difficult.

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Risk Currencies Surge Higher

• Worldwide coronavirus cases surpass 112.1 million with over 2.48 million official

It was good to see a bit of excitement in the New Zealand Dollar develop Monday after a slow 2 to 3 weeks of little movement and benign economic activity. The kiwi climbed out of its recent range posting 0.7340 against the greenback, an early April 2018 level and looks poised to click higher. S&P (Standard & Poor’s) credit agency raised the New Zealand Credit rating from AA to AA+ saying the economy is recovering quicker than most other countries attributed to containing the virus well. S & P said they expect fiscal indicators to remain over the next few years and GDP to grow to about 3.2% between 2022 and 2024. This would be some effort as New Zealand hasn’t been able to achieve this since January 2019.

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Markets in Consolidation Mode

  • Worldwide coronavirus cases surpass 110.7 million with over 2,447,000 official deaths.

Markets are heading into the close of this week in consolidation mode with all eyes on longer-term interest rates. US 10 and 30yr yields lead the move higher this week breaking through significant levels and eventually trading to their highest levels in over 12 months. The rising bond yields eventually began to weigh on US stocks with indices trading to a two-week low overnight. Bond yields are rising as investors are upgrading their outlook for economic growth and inflation. Biden’s $1.9trn stimulus plan is helping to underwrite those expectations. Most economists and central banks believe any uptick in inflation will only be temporary, but with all the money creation that’s occurred in the world over the past year, it worth considering the risk that inflation may not be as transitory as the experts believe. 

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Positive risk sentiment drives markets

Worldwide coronavirus cases surpass 109.6 million with over 2,417,000 official deaths.

Generally positive risk sentiment over the past week has been evident in the markets as a reflation narrative gathers pace helped by the global vaccine rollout and expectations of US fiscal stimulus. Bond yields in Europe and the US have been moving higher, trading to levels not seen since September last year. US 10-year yields have moved above 1.20% while 30-year yields are now above 2.00%. Stock markets are also pushing higher along with energy markets.

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USD Continues to Feel Pressure

  • Worldwide coronavirus cases surpass 107.2 million with over 2,345,000 official deaths.
  • US Equity markets continued to register record levels over the past week.
  • While the market awaits the passage of the $1.9 Trillion US bailout bill, Treasury secretary Yellen says the US could hit full employment next year if the stimulus bill is passed, potentially suggesting interest rates could rise sooner than expected.
  • US Non-Farm Payrolls rose less than expected at +49k, but the unemployment rate fell to 6.3% from 6.7% on the back of a decline in the participation rate. 
  • New Zealand Q1 inflation expectations jumped to 1.89% from 1.59% prior. 
  • The Bank of England leaves interest rates unchanged at 0.10% and maintained its QE program at current levels.
  • UK like for like retail sales +7.1% y/y bs +4.8% prior.
  • Canadian employment change comes in much worse than expected at -212.8k, but much of the decline was as a result of Covid restrictions put in place late last year in Quebec and Ontario. 

NZ Jobs Data Rallies the Kiwi

Market Overview

  • Worldwide coronavirus cases surpass 104.3 million with over 2,261,000 official deaths.
  • US Equity markets continue to register record levels with the DOW and Nasdaq both up over 1.5% overnight.
  • The US Senate has voted in favour of moving ahead with his 1.9T coronavirus relief stimulus plan.
  • The RBNZ are no longer interested in cutting rates this year after a bumper unemployment read of 4.9% unemployment earlier today.
  • The Reserve Bank of Australia have raised their bond buying program by 100B but made comment the Australian economy is well underway to recovering earlier than predicted.
  • AstraZeneca vaccines are showing an 82.4% efficacy rate after a 3 month gap between jabs.
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