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ECB Holds Rates But Signals Easing To Come

Published July 26, 2019

The NZD is the weakest performing currency overnight as risk off sentiment returns to markets.   Westpac also didn’t help matters, announcing yesterday that it now forecasts the RBNZ to cut interest rates twice this year, with markets largely expecting a rate cut when they next meet on 7th August.

ECB Hold Rates

The European Central Bank left rates unchanged at the monetary policy meeting released overnight. ECB President Mario Draghi pledged to ease policy further as he said “This outlook is getting worse and worse”. Markets had previously been pricing in a 50% chance of a rate cut and saw the EUR push 0.7 % higher against the NZD on the announcement falling off the recent .6000 levels. Markets are now pricing in an 84% chance of a 10-basis point cut in September.

RBA “Expect Lower Rates For Longer”

The AUD dipped following RBA Governor Philip Lowe’s speech yesterday on ‘Inflation Targeting and Economic Welfare’, amid recent media speculation on whether the RBA should lower its current target inflation range of 2-3% with consumer prices continuing to come in below 2% over 3 years. Lowe said it’s “reasonable to expect an extended period of low interest rates” and that “the central bank is prepared to ease policy further if demand disappoints”. The RBA continue to back the current target range and mentioned the board is fully committed to reaching this target. Markets are now increasing bets on a third rate cut by year-end which will see the official cash rate at a record low 0.75%. The NZD was unable to hold gains above .9600

Markets Look Ahead To Tonight’s US GDP Data

Focus turns to tonight’s US 2nd quarter GDP results with economists expecting growth around 1.8%, down from 3.1% in the previous quarter. The release comes ahead of the Federal Reserve’s rate announcement next Thursday with markets expecting a 25-basis point rate cut.