The RBNZ cut the cash rate by 25 basis points to 2.5% last week. The New Zealand dollar rebounded since mid September lowered the chances of RNBZ achieving its inflation target. They mentioned the current rate is likely to be enough to get inflation back to target while maintaining an easing bias. This is the fourth interest rate cut since June this year.
The New Zealand dollar jumped 1.29% against the US dollar from $0.6640 to $0.6750after the bank’s decision, as the bank failed to indicate possibilities of further easing.
Even amidst recent threats to exports, New Zealand has seen strong gains in tourism and immigration, which have strengthened its service sector. The dairy products auction earlier this month showed dairy prices had recovered some lost grounds from consecutive decline in past 3 auctions. Analysts warned that the dairy prices are still volatile and any recovery is likely to be slow.
RBNZ’s Wheeler highlighted several risks to the economy including high net immigration, a possible drought associated with El Nino and further falls in export prices.
The main focus for this week will be on the FED, their FOMC statement and press conference on Wednesday. It is a highly anticipated rate hike by FED, first in almost a decade. The last rate hike was in June 2006. If the FED failed to meet the market expectation and decide to hold off the rate hike to 2016, it is possible to see a sell-off in the US dollar until end of this year. If the rate hike happen as expected, market is likely to look out for guidance and hint towards their tightening policy in the statement.
Apart from the FOMC meeting, next week sees the release of some important US data, most notably, the November core CPI, last week’s jobless claims and the December Philly Fed Manufacturing Index.
