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XE Morning Update - NZ

The NZDUSD opens higher at 0.6540 this morning.

It was all about the US Federal Reserve overnight. They left their key interest rate in a range of 2.25-2.50%, but indicated a readiness to cut interest rates to sustain the US economic expansion. The Fed removed a reference in their statement to being “patient” on borrowing costs, forecast a larger miss of their 2% inflation target this year and mentioned an increased level of uncertainty in the economic outlook.

The USD fell, US Treasury prices rose (lower yields), and the equity markets made modest increases as ‘risk assets,’ such as the NZDUSD, benefited from the Fed’s acknowledgement that interest rate cuts may be necessary. Seven of the 17 Fed policymakers indicated they it would be appropriate to cut the rate by 0.50% by the end of 2019.

The US Fed’s next meeting (30/31 July US time) is considered ‘live’ for a rate cut, particularly if economic data continues to deteriorate. The financial markets believe President Trump’s trade wars are slowing US and global economic momentum and that interest rates are too high given lethargic inflation rate.

The GBP made gains overnight ahead of tonight’s Bank of England interest rate policy meeting.

NZ Q1 GDP will hit the wires at 10:45am today. Market forecasts are for 0.6% in Q1 and 2.3% year-on-year – expect some NZD volatility, especially if the actual numbers differ significantly from those anticipated.

Global equity markets were mostly sharply higher on the day - Dow +0.2%, S&P 500 +0.3%, FTSE -0.5%, DAX -0.2%, CAC +0.2%, Nikkei +1.7%, Shanghai +1.0%.

Gold prices gained 0.4% to USD$1,352 an ounce. WTI Crude Oil prices fell 0.6% to US$53.71 per barrel.

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