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NZD simmers ahead of key rate announcements and business confidence

Published September 26, 2018

The NZD opens relatively flat today ahead of the US Federal Reserve and RBNZ rate announcements tomorrow morning.

US oil prices rose overnight on supply concerns with WTI crude oil at $73.04 per barrel and Brent oil shot above $80 a barrel and a four-year high.

Fed kicks off its two-day meeting today ahead of rate announcement tomorrow

The Federal Reserve meets today and will release their rate announcement tomorrow morning which is widely expected to result in a rate hike by 25 basis points. This is largely priced into markets and another hike priced in at 80% when they meet again in December, markets will now be focusing on the Fed’s forward guidance and any changes in the dot-plot which will give a projection on rate hikes expected in 2019. Markets have already priced in a further two rate hikes in 2019 so an indication above this will put the NZD under pressure.

US consumer confidence also hit an 18-year high at 138.4 vs previous 133.4 as households grew more optimistic on the labour market, despite growing trade tensions between the US and China.

Trade tensions continue to simmer

China said they are open to talks on the trade dispute, but they expect the US to show sincerity and not put “a knife at Beijing’s throat”. The US trade restrictions are responsible for the stalled talks and any resumption is up to them, according to a Chinese official.
Locally today we have the NZ trade balance out at 10.45am, followed by the ANZ Business Confidence survey at 1pm. Given the recent pessimistic views of NZ businesses, it will be interesting to see if the sentiment has improved.

Tomorrow morning the RBNZ will make their rate announcement and unlike the Fed we expect comments to be dovish with rates expected to stay on hold at 1.75% through to the mid-2020.