Snapshot – 13th November

13th November 2019

The Kiwi Dollar has rallied over 1% to a 3-week high in trade-weighted terms after the RBNZ surprised markets by keeping its policy rate unchanged at 1.00% in its meeting overnight. Analysts had forecast a 25bp rate cut and markets had priced in a 65% probability of a cut, with a view that the RBNZ – which has a history of surprising markets – would deliver one last “insurance” cut in this easing cycle. The RBNZ said monetary policy was currently very stimulative but that it could cut rates further if necessary.

Other major currencies have been broadly stable in the past 24 hours, with the Dollar showing little reaction to US President Trump’s speech yesterday afternoon. He said that a trade deal with China was close but that the US would only sign a phase-one deal if it was beneficial to the US, in an echo of recent speeches. He also renewed his pressure on the Fed to cut rates further, arguing in favour of negative rates – in contrast to Fed Chairperson Powell and other FOMC members who have recently hinted that the
current policy rate may be appropriate and on hold for now.

Similarly, Sterling has skirted the release of CPI-inflation data for October. GBP/USD is still oscillating around 1.285 with markets focussed on political developments ahead of the 12th December general election. While headline CPI-inflation fell to a 3-year low of 1.5% yoy (from 1.7% yoy in September), core CPI-inflation – which strips out more volatile food and energy prices – was unchanged at 1.7% yoy. The consensus view remains that the Bank of England is very unlikely to cut or hike its policy rate (currently 0.75%) until there is greater clarity on the Brexit and macro policy front.