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Kiwi Lower, US Fed Leaves Rates Unchanged

Published November 9, 2018

The Kiwi Dollar begins the day lower but still holding on to the majority of gains made from bullish employment data earlier in the week. The US Fed has left interest unchanged as expected this morning, which has resulted in some USD strength which has contributed to the lower NZD.

RBNZ a little more Hawkish?

Yesterday’s RBNZ rate decision had little impact on the currency with the bank leaving the OCR on hold at 1.75% as expected, citing both upside and downside risks to the economy. The message was “rates on hold” through 2019 and into 2020, although the Bank did remove the “next move could be up or down” language from the latest statement. This has many believing the RBNZ won’t be able to hold out that long before hiking rates, especially given the upgraded forecasts around inflation and economic growth, and Wednesdays surprisingly strong employment data. Later in the day Governor Orr added more comments, saying he really welcomed the declining unemployment number, but would consider a rate cut if GDP fell short of projections.

FOMC Leaves Rates on Hold

As expected, the US Federal Reserve has left its interest rate unchanged at 2 – 2.25% this morning. The accompanying statement was also similar to last time with the Fed expecting “further gradual increases” in the overnight rate. The Fed has already hiked rates three times this year and is favoured to hike again at the next meeting.

Brexit Uncertainty Weighs on Pound

Brexit uncertainty continues to weigh on the Pound. UK Prime Minister May will travel to Brussels tonight to negotiate with EU leaders for additional time to obtain a Brexit agreement with her Cabinet. May openly appealed to Angela Merkel and EU Council Chair Donald Tusk to keep the opportunity of a deal this month on the table.

EU Tensions with Italy Continue

The NZD/EUR cross rate was up once again, despite the NZD falling, and has gained over 6% in the past month. Tension between the European Union and Italy remains, with the EU criticizing Italy’s budget proposal as being overly optimistic regarding the effect of its outlay program. The dispute has led to speculation in Italy that an early election may be called, as pressure on the coalition increases.