The NZD plunged to a 3-1/2 year low as the RBNZ shocked markets with a more aggressive 50 basis-point rate cut bringing the official cash rate to a fresh record low of 1%. Markets had only been expecting a 25 basis-point cut and saw the NZD fall sharply on the hefty cut. The NZD has since pared back some of its losses as bets increase on more central banks easing.
RBNZ: ‘Negative Interest Rates a Possibility’
The Reserve Bank of New Zealand Governor Adrian Orr said on Wednesday “it is easily within the realms of possibility that we might have to do negative interest rates” to help stimulate the economy. However, he added the 50 basis-point cut reduces the risk of having to use negative interest rates. The Monetary Policy Committee agreed a lower OCR was necessary to continue to meet its employment and inflation objectives. The RBNZ forecast around a 1-in-3 chance of another cut by year end and sees no chance of a hike until late 2021, with markets expecting a rate cut in November.
The RBNZ wasn’t alone in surprising markets with a rate cut yesterday, with both the Reserve Bank of India and the Bank of Thailand also catching markets off-guard with unexpected cuts. The Indian central bank cut at a higher 35 basis-points and Thailand’s central bank eased interest rates for the first time in 4 years by 25 basis-points. The latest round of rate cuts, along with trade war uncertainty spooked markets into safe-haven currencies and gold.
German Recession Fears After Industry Slump
German industrial production suffered its biggest annual decline in nine years, falling 5.2% from the year prior and increasing fears that Europe’s largest economy could be heading for its first recession in more than six years. Overall industrial production was down 1.5 percent compared with the previous month. Trade uncertainty and slowing global growth continue to weigh on German factories with industrial giants downgrading their profit outlook and companies announcing job cuts.
© Copyright - EncoreFX, 2018.The information in this post is provided for general information purposes only and has been prepared without taking into account any person’s objectives, financial situation or needs and, accordingly, it does not constitute personalised financial advice under the Financial Advisers Act 2008, nor does it constitute advice of a legal, tax, accounting or other nature to any person. Before acquiring any financial services or products from EncoreFX, you should consider the appropriateness of the information having regard to your own objectives, financial situation or needs. We recommend that investors seek advice from their usual adviser before taking any action. EncoreFX (NZ) Ltd is a registered Financial Services Provider (FSP 461386), and is a licensed derivatives issuer under the Financial Markets Conduct Act 2013. EncoreFX (NZ) Ltd has lodged a Product Disclosure Statement (PDS) for each of our derivatives with the Registrar on 21-Dec-2016. A copy of each PDS is available from us or from the Registrar at www.business.govt.nz/disclose.