HiFX morning Update, March 28, 2019

NZDUSD 0.6799 -1.6%
NZDEUR 0.6040 -1.4%
NZDGBP 0.5129 -2.0%
NZDJPY 75.09 -1.7%
NZDAUD 0.9598 -0.9%
NZDCAD 0.9113 -1.5%
GBPNZD 1.9497 2.0%

The NZDUSD opens sharply lower at 0.6799 this morning.

It was all about the RBNZ OCR (official cash rate) decision yesterday. Governor Orr maintained the OCR at 1.75%, as almost universally expected, however he surprised the market when he indicated the next move in rates was likely to be lower – he had previously indicated rates would be ‘on hold’ until 2020.

Governor Orr also stated that expected easier monetary policy in other countries was placing upwards pressure on the NZD. The implication here is the relatively strong NZD would damage our export sector and, potentially, threaten jobs – the RBNZ has an even sharper focus on the employment situation now it has a dual mandate inflation-full employment mandate. Rather than fight the tide, and acknowledging the risk of a more pronounced global downturn and low NZ business sentiment, Governor Orr decided to join the competitive rate cut party, with the NZD duly obligating and stepped off the cliff.

The NZDUSD and NZDAUD plunged by 100 points after the ‘rate cut’ bias hit the wires, and has only staged a modest bounce overnight. While the local equity market rejoiced and surged 1.2% higher.

Some market forecasters are now predicting the RBNZ could cut rates as soon as 8th May. Expect more volatility and be ready to take advantage of any currency hedging opportunities when they present themselves, as they may not last long.

Elsewhere, the currency markets were relative subdued, apart from the GBP which jumped higher after several UK MP’s said they would support PM’s May’s Brexit deal now that she has offered to resign, if her deal is approved by parliament.

NZ Business Confidence figures will be released today at 1pm – given the RBNZ mentioned weak business confidence as being an issue yesterday, these figures could spark another market reaction. Before that, at 10:30am, US Fed board member Esther George will speak about the US economic outlook and monetary policy.

Global equity markets were mostly lower on the day - Dow -0.2%, S&P 500 -0.5%, FTSE -0.0%, DAX +0.0%, CAC -0.1%, Nikkei -0.2%, Shanghai +0.9%.

Gold prices fell 0.3% to USD$1,310 an ounce. WTI Crude Oil prices slid 1.2% to US$59.33 per barrel as US crude inventories unexpectedly rose last week.

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