The Kiwi Dollar begins the day sharply higher as yesterday’s positive employment data caught the market by surprise . Also adding to the NZD strength was general USD weakness after yesterday’s US mid-term elections, where the Democrats took over Congress as expected. All major NZD cross rates are sharply higher this morning, and the just released RBNZ decision has had little impact on the currency with rates left on hold as expected.
NZ unemployment has dropped sharply to 3.9%, the lowest level since June 2008, and well ahead of market expectation of 4.5%. The data suggests that the economy is doing well despite recent disappointing business confidence numbers, and the market may have now priced out the likelihood of any further cuts in the OCR. Today’s RBNZ statement was always going to be a keenly watched event, but the timing of yesterdays employment data placed even more focus on this morning’s comments from the RBNZ, although much of the statement will have been written before the positive employment numbers were released.
The RBNZ has kept the official cash rate on hold at 1.75% as expected. The bank expects the OCR to be kept at the current level through 2019 and into 2020, but sees GDP growth picking up next year and inflation is expected to rise to the mid-point of the target range at 2%. . The statement highlighted both upside and downside risks to the banks growth and inflation projections with business sentiment and global trade tensions still a concern. The timing and direction of any future OCR moves remains “data dependant”.
The US midterm election outcomes were in line with market expectations, as Democrats won control of the House. Republicans preserved their majority in the Senate. The greenback has fallen on the back of the result, despite the legislative gridlock being viewed as a relatively positive consequence for markets. While the currency is lower, the election result has been positive for stock prices with Wall Street up by 2% with investors buying into technology and healthcare sectors. The next big event for the USD (and other currencies) is the US FOMC rate decision early tomorrow morning.
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