Official NZ cash rate to be left lower for longer

Official NZ cash rate to be left lower for longer

By Andrew May (Sales Trader, CMC Markets New Zealand)
18 July 2012

Following the easing of monetary policy rhetoric we hear emanating from central banks around the globe, expect New Zealand mandate to rigorously follow suit after yesterday's key inflation figure which was the lowest in 12 years.

With just a mere 0.3% expansion for the June quarter pushing down the annual headline figure to 1.0% (the slowest annual incline since 1999), the NZD understandably fell 20pts to 0.7960 taking with it any onus for an impending rate hike in my opinion until at least late 2013.

However the last 24 hours had seen some rocky volatility injected back into the trajectory of the NZD. Firstly dovish comments from the RBA following Reserve Bank Board minutes yesterday signalling perhaps an end to any further rate cuts threw the AUD up three quarters of a USD cent taking with it in its wake the NZD, which headed straight back to early July USD 80c levels.

The Kiwi held its head above the waves for only so long until this morning’s US Monetary policy report to the Senate to which once again dangled the 'ever so close, yet so very far away' QE3 'carrot'. The Kiwi US cross was knocked straight back to a low of 0.7930 before treading water comfortably at 0.7965 upon a pleasing yet confident end to the US market session.

The currency also wasn't helped by the fortnightly Fonterra milk powder auction overnight which showed another fall of 0.9% adding to the 5.9% fall from the previous auction. This was a complete surprise given the current record drought conditions in the US increasing demand for soft commodities.

A quiet week lies ahead for the NZD until next week's trade balance and official cash rate decision. The Kiwi US cross should sail a range well supported above 79c with a possible retracement to 0.8010 albeit if traders are feeling buoyant towards the overseas monetary bias and shun greenbacks in favour of risk. The NZD/EUR will shine on a little longer at record highs of e65c as Greece scrambles to buy itself time in repatriating 11.7 bio euro in spending cuts before the Troika returns to check their progress next Wednesday morning.

www.cmcmarkets.com

ENDS

© Scoop Media