NZD held to narrow ranges
It was a quiet day for the NZD yesterday with traders wary of establishing new positions ahead of major interest rate announcements in the UK, US and Europe later this week. The currency did encounter a small downward flurry when the Reserve Bank stated in its six-monthly report on financial stability that demand for carry trades was likely to continue to underpin the NZD. However the move soon petered out into nothing as the currency remained entrenched within a narrow range. Similarly the NZD held to narrow ranges overnight as the USD remained steady after the Federal Reserve kept interest rates unchanged.
AUD treading water ahead of rate announcements
Like the NZD, the AUD was also quiet yesterday ahead of major interest rate announcements later this week, with the currency confined to a narrow 20 point range for most of the day. Rumours of BHP Billiton and Rio Tinto being in talks lent some temporary support to the AUD, while the currency ignored data which showed that Q1 house prices rose 1.1%, the same as in Q4. Overnight trading was also quiet, with a brief rallied rally above 0.8300 the only notable move.
FOMC retains hawkish bias
Overnight the market treaded water ahead of the FOMC rate announcement in what could be deemed a fairly quiet session with most currencies trading in familiar ranges. The announcement, released first thing this morning, was fairly subdued with rates left unchanged at 5.25% for the 11th consecutive month and the only significant change in the accompanying statement being the acknowledgement of weak Q1 GDP data. Most importantly though was the policy risk paragraph which was completely unchanged with the Fed still wary on inflation. This saw the USD gain against the euro and pare losses against the yen to finish the session near 1.3520 and 120.00 respectively.
Japanese leading index matches expectations. Japanese leading index came in at 40, on expectations but below the expansion line of 50. However, we don’t believe it is pointing to a recession as we think the index is underestimating growth prospects to a modest degree.
US FOMC left rates unchanged at 5.25% following today’s meeting. The only significant change in the statement was acknowledgement of the weak Q1 GDP data; the soft March core inflation numbers were alluded to only by replacing “recent readings on core inflation have been somewhat elevated” by “core inflation remains somewhat elevated”. The housing comment was the same, and economic growth is still expected to be moderate over the rest of the year. Most importantly, the policy risk paragraph was completely unchanged. The Fed expects inflation to ease over time, but their predominant concern remains that it doesn’t. Although not stated, that is a bigger risk for the Fed than the risk that the economy slips into a more damaging slowdown. Westpac expects the Fed to remain on hold all this year, with a persistent but very mild tightening bias.
UK private sector retail indicators mixed in April. The BRC retail sales survey showed a slower annual growth pace for the first month in five. That contrasts with the much stronger CBI retail survey for April, although we suspect that survey had more of an Easter distortion at play. The BRC shop price index showed further acceleration in prices, though less so than in prior months.
