Home Daily Commentaries Governor Orr expects to hold rates into 2020

Governor Orr expects to hold rates into 2020

Daily Currency Update

The New Zealand dollar was boosted yesterday morning by a positive outlook in the latest release of ANZ Business confidence levels for the month of September. The headline moved from – 50.3 to a reading of -38.3 suggesting businesses are still pessimistic about the local economy as indicators remain weak, albeit moving in the right direction.

The result was a move higher for the Kiwi, shifting from 0.6645 at open to 0.6680 off the release. Trade balance figures were released a few hours before and came in at a deficit of 1.48bn driven by an increase in the cost of oil and diesel imports. The release damped the Kiwi initially by 10 basis points before its move higher following the release of ANZ business confidence levels.

The local currency reached a high of 0.6685 during domestic play, before drifting back lower to pair all gains to 0.6640 heading into the announcement of bot the FOMC and RBNZ interest rate decisions.

As expected the Federal Reserve lifted interest rates by a further 0.25%, with investors digesting their latest statement, the NZD/USD remained volatile for an hour oscillating between 0.6695 and back down to eventually settle at 0.6660.

The RBNZ kept interest rates on hold as expected at the benchmark rate of 1.75% as RBNZ Governor Orr expects to keep their Official Cash Rate at these levels into 2020. With this news the Kiwi saw a brief rally higher but nothing substantial in a busy 24 hours on the markets.

The New Zealand Dollar opens this morning at 0.6660 with most notably United States Final GDP and Core Durable Goods Orders due for release this evening

Key Movers

The Australian Dollar has seesawed it’s way through Wednesday’s of trade, having initially opened around 0.7250 against the U.S Dollar, the pair edged up towards 0.7280 during Asian trade however as the European markets opened the pair was unbale to hold on and relinquished all those gains touching a low of 0.7240.

As we moved west and the North American session was underway, investors eagerly awaited the US Fed announcement. The AUD/USD pair jumped up from 0.7255 to 0.7307, the highest in 4-weeks once the Fed’s decision of raising interest rates to 2.00-2.25% was released, the third hike of the year. The Greenback was sold off quickly following the statement which could be due to some bets that the removal of the “accommodative” in the statement indicates less urgency for tightening. The odds of a December rate hike slipped below 80% after the announcement according to the CME FedWatch tool.

This morning the pair is currently trading at 0.7257 at the time of writing with 0.7300 being the key short-term resistance level.

There is no local data due out today but a raft of US data including GDP and Durable Goods.

The pound slipped 0.1% on Wednesday as markets remained cautious about Brexit negotiations between Brittan on the EU. Still trading above Fridays low of 1.3041, the GBP/USD opens this morning Sydney time at 1.3165 with GBP/EUR also gaining 0.2% on the day. Concerns that we might see another election seem to have dissipated after Prime Minister May pushed back on the idea when questioned on her way to New York.

Traders will now look to Thursday’s quiet calendar which sees ECB president Draghi and BOE Governor Carney deliver speeches before we get UK Q2 GDP and current account metrics on Friday. On the technical front GBP/USD seems relatively well supported around 1.3100 with any upside moves likely to be met by resistance at the 1.3200 handle.

The Greenback edged higher on Wednesday after the U.S. Federal Reserve voted unanimously and raised interest rates as expected for the eighth time. Fed policymakers lifted the overnight cash rate by a quarter of a percentage point to a range of 2.00 percent to 2.25 percent whilst flagging more rate hikes in December, while three more are foreseen for next 2019. U.S. Federal Reserve Chairman Jerome Powell said at a press conference that the 'accommodative' era is over.

China also announced overnight will cut import tariffs on goods (1,585 products) including machinery, paper, textiles and construction materials from Nov. 1, in a move that would lower costs for consumers and companies as a trade war with the U.S. deepens.

In afternoon trading, the dollar index, which measures the U.S. unit against six major currencies, was up 0.1 percent at 94.179. The S&P 500 fell 0.3 percent, with the bulk of losses coming in the final 20 minutes of trading.

The Euro kept within a familiar range in overnight trading, oscillating between 1.1730 and 1.1790. Initially supported by a less than hawkish FOMC statement, the Euro looked set to challenge 1.1800 but ultimately failed to hold its gains and fell from its position of strength. Opening this morning at 1.1745, the Euro looks relatively unchanged from yesterday’s open.

The hard-hitting news was the FOMC announcement and supplementary statement which held few gremlins for investors. The widely expect US rate hike to 2.25 did occur and the statement remained relatively optimistic, although did omit the word ‘accommodative’ from the text. Markets took the removal of the word as a sign that the Fed sees the expected rate hikes as approaching neutral territory. The Euro initially appreciated on the news but unwound those gains over the course of the morning.

Moving into Thursday the Euro is set to enjoy a slightly more active economic calendar with the M3 money supply and German CPI figures due for release. The United States is also due to release quarter on quarter GDP figures and ECB President Draghi is due to speak at the European Systemic Risk Board Conference.

The Canadian Dollar diminished overnight to reach one-week lows following further concerns that Canada would be left out of ongoing NAFTA trade negotiations. Prime Minister Justin Trudeau addressed the issues in an appearance on Wednesday as they work towards an agreement that will include them in a deal between the United States and Mexico, due for soft deadline by week end.

The USD/CAD was driven from initial sideways action during the European session from 1.2960 to an overnight high of 1.3044 and was supported by the Federal Reserve’s decision to increase interest rates as expected from 2.00%>2.25%.>

Canadian investors look towards Bank of Canada’s Governor Poloz’ speech this evening where he is due to speak at an Economic council dinner along with GDP figures for the month of July due for release Friday evening.

The USD/CAD currently trades at 1.3034.

Expected Ranges

  • NZD/AUD: 0.9110 - 0.9280 ▲
  • GBP/NZD: 1.9700 - 1.9850 ▲
  • NZD/USD: 0.6600 - 0.6700 ▼
  • NZD/EUR: 0.5610 - 0.5710 ▼
  • NZD/CAD: 0. 8600 - 0.8720 ▲