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Kiwi Rises As Trade Wars May Push Fed to Cut Rates

Published June 5, 2019

The NZD opens higher this morning after Fed Chair Jerome Powell opens the door for a possible rate cut on rising trade tensions.

St. Louis Fed President James Bullard recently remarked that a cut may be needed soon to counter trade war risks. Powell later backed up the comments when he was speaking at a policy conference in Chicago saying the Fed was “closely monitoring implications” of a trade dispute and would act “as appropriate”. Markets are pricing in a rate cut by year end.

RBA Cuts Rates

The Reserve Bank of Australia cut the official cash rate from 1.5% to 1.25% yesterday as widely expected. RBA Governor Philip Lowe said they “would be watching closely to see employment pick up as desired”, leaving the door open for a further rate cut. The rate cut had already been priced into the market plus a second cut. Focus will now turn to today’s GDP report released at 1.30pm with risks tilted to the downside.

Dairy Auctions Prices Fall

Global Dairy prices fell 3.4% in last night’s auction, with an average selling price of $3423 per tonne. Volumes however rose 28.1% with a total of 19,874 tonnes sold at the latest auction. The NZD largely shrugged off the disappointing result as the possibility of a rate cut from the US increase.

Euro Data Disappoints

The euro area seasonally adjusted unemployment rate was 7.6% in April 2019, down from 7.7% in March 2019. This marks the lowest rate recorded since 2008. The euro area received another disappointing data read as Eurostat’s flash reading of Eurozone CPI report came in at 1.2% in May, missing expectations of 1.3%. Meanwhile, the core figures also dropped to 0.8% in the reported month when compared to 0.9% expectations and 1.3% previous. Focus will now turn to the ECB rate announcement when they next meet on Thursday.