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USD Falls As Fed Sees Case for Rate Cuts

Published June 20, 2019

The Kiwi opens a touch higher against the USD this morning following the Federal Reserve signalling possible rate cuts.

USD Falls After Fed Signals Rate Cuts

The Federal Reserve held rates steady at 2.25-2.50% this morning as expected, however signaled two possible rate cuts over the course of the year in response to increased economic uncertainty and a drop in expected inflation. Though the baseline outlook remains “favorable,” Fed Chair Jerome Powell said, risks continue to rise, including the drag that rising trade tensions may have on U.S. business investment and signs that economic growth is slowing overseas. Both the USD and US Treasury yields fell on the announcement with a rate cut now expected as soon as its next meeting in late July. Markets will now turn their focus to the upcoming G20 summit where President’s Donald Trump and Xi Jinping are expected to have extended talks in hope of securing a trade deal.

Canada’s Inflation On The Rise

Inflation in Canada is rising, with the Consumer Price Index coming in at 2.4% and well above the +2.1% that markets were forecasting. The CPI has increased despite a series of comprehensive gains which have included higher prices for food and durable goods. This has also come during a period that saw consumers pay 3.7% less for gasoline compared with May 2018. The CAD rose 0.5% on the announcement.

Focus Turns to NZ GDP

Markets now turn their focus to our local GDP release this morning at 10.45am with 0.6% growth expected for the first quarter of the year vs RBNZ forecast of 0.4%. Year on year growth of 2.4% forecasted and anything above this will be NZD positive. The RBNZ will be watching this closely ahead of their next rate decision on Wednesday 26th June, with markets currently expecting to see a cut to 1% from the current 1.75% over the next 6-12 months.