- AUD/NZD rallied from1.0616 to a high of 1.0697 post RBNZ rate decision.
- RBNZ is committed to keeping rates st 0.25% until 2021, but prepared to cut further.
- RBNZ expands QE programme, as expected, to NZ$60B,
AUD/NZD is currently trading at 1.0684 following a spike on the Reserve Bank of New Zealand interest rate decision and expansion of its QE programme to NZD$60B.
The RBNZ, as expected, left rates on hold but have said that they are prepared to cut the cash rate further. However, the Committee reaffirmed its forward guidance that the OCR will remain at 0.25 percent until early 2021. Key notes from the statement follow:
RBNZ statement highlights
The Committee reached a consensus to:
- expand the LSAP programme to purchase up to a maximum of $60b over the next 12 months;
- delegate to staff the composition and pace of purchases within the LSAP programme, across the eligible asset classes of NZ Government Bonds, NZ Government Inflation-Indexed Bonds, and Local Government Funding Agency bonds; and
- hold the OCR at 25 basis points.
- The Committee reaffirmed its forward guidance that the OCR will remain at 0.25 percent until early 2021.
More key points:
- RBNZ expects to see retail interest rates decline further.
- Prepared to cut cash rate further if needed.
- Balance of economic risk remains to downside.
- Keeping interest rates low for foreseeable future
- Committed to achieving employment, inflation objectives .
- Forecasts show no chance of rate cut through Q1 2021.
- Sees average ocr in 1q 2021 at 0.25%.
- sees average ocr in 4q 2020 at 0.25% .
- Sees average ocr in 3q 2020 at 0.25%.
- Sees GDP contracting 21.8% in 2q 2020.
Governor Orr's press conference will be out at 0300GMT.
COVID-19 flare-ups will highlight the challenge of emerging from lockdown
Meanwhile, AUD/USD rallied as far as 0.6536 in London but sentiment turned sour again as investors mulled the prospects of second waves of COVID-19. NAtions are opening up their economies and that puts their populations at risk of contagion. In recent trade, China is yet again reporting new cases and this time, there is a partial lockdown being implemented in Jilin City. This latest regional flare-up highlights the challenge of emerging from lockdown – serving as a template for the rest of the world – risk-off for markets.
Earlier, New Zealand PM Jacinda Ardern explained that the nation is about to enter a very tough winter. She said that the budget 2020 will look to accelerate employment, empower businesses, and stimulate the economy. This is said on the week that NZ also seek to open up the economy. More on this here: New Zealand PM Ardern: Country about to enter a very tough winter.
A more positive outlook
On a brighter note, the Westpac-Melbourne Institute Index of Consumer Sentiment rebounded 16.4% to 88.1 in May from the extremely weak 75.6 read in April.
The analysts at Westpac argue that developments around the Coronavirus have been more positive. "While the number of confirmed cases globally has doubled since the April survey, the rate of growth has slowed markedly in both Europe and the US."
Meanwhile, the analysts at Westpac noted that Australia has seen particularly good outcomes pertaining to COVID-19 of late. The total number of confirmed cases is rising just 10% over the month, and showing signs of levelling out altogether.
The resulting pressure on our health system is much milder than had been feared two months ago.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD stays below 1.0800 after upbeat US data
EUR/USD stays under bearish pressure and trades slightly below 1.0800 in the American session on Thursday. The data from the US showed that the real GDP growth for the fourth quarter got revised higher to 3.4% from 3.2%, supporting the USD and weighing on the pair.
GBP/USD stays in daily range above 1.2600
GBP/USD fluctuates in a narrow channel above 1.2600 on Thursday. The better-than-expected Initial Jobless Claims data from the US and the upward revision to the Q4 GDP growth helps the USD stay resilient against its rivals and limits the pair's upside.
Gold clings to strong daily gains above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays above 4.2% after upbeat US data and makes it difficult for XAU/USD to preserve its bullish momentum.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.