RBNZ Cut Interest Rate To All Time Low

Noam Stiekema

Reserve Bank of New Zealand cut interest rate to 2.00%, Kiwi surprisingly rallied more than 150 pips!

By Wayne Ko, Head of Research & Education at Fullerton Markets

RBNZ followed the footsteps of RBA and BOE, slashed its interest rate to an all time low of 2.00%.  The cut was prompted by a persistently low inflation, currently at 0.4%, way off RBNZ’s target range of 1% to 3%.  The Kiwi had held up well above 0.71, even after 2 rate cuts this year.  With a strong currency, RBNZ is finding it tough to hit their inflation target.

NZD/USD jumped more than 150 pips immediately after the interest rate announcement.  The 25 basis point cut was not enough for some investors, who were expecting a 50 basis point cut.  However, RBNZ Governor Graeme Wheeler said in his statement, “further easing will be required to ensure that future inflation settles near the middle of the target range”.  A strong signal was sent by the use of “will be” instead of “may be” in Wheeler’s statement.  The market eventually adjusted to the prospect of further rate cut.  NZD/USD fell back below 0.72, back to the level prior to the rate cut.

Fed’s delay in raising its rate has become a challenge to central banks that are battling low inflation.  Just after a promising Non-Farm Payrolls, last Friday’s retail sales data is a disappointment.  Casting shadow and doubts on the possibility of a rate hike this year.  This week, investors will be looking at US CPI data and FOMC Meeting Minutes for guidance.

With the poor retail sales, the Core CPI is unlikely to out-perform the market expectation of 0.2%.  If the FOMC Meeting Minutes indicate Fed is still open to a rate hike this year, it should provide some support for the greenback.  Failure to do so, market may price out rate hike this year or even push back expectation to second half of 2017.

After a slew of bad data, the sterling has become the worst performer against the greenback.  The pound has weakened 3% against the dollar since BOE cut its interest rate early this month.  The short-term bulls may be looking for some positive data in the upcoming CPI, employment and retails sales to take some quick profits off the current key support of GBP/USD around 1.29.

Oil price has seen a decent recovery after bouncing off the 4-month low.  As mentioned in our last week’s report, the chart has shown signs of a technical reversal.  WTI is now heading towards $46 a barrel.  The recent rally is sparked by Saudi Arabia expressing willingness to discuss stabilising the oil price at informal OPEC discussions next month.

Based on our past observations, such rally is unlikely to sustain unless there is concrete decisions being made.  We feel the market may continue to be hopeful of positive outcome in the near term.

Our Picks

GBP/USD – Slightly bullish. We expect the key support of 1.29 to hold, unless this week’s UK CPI, employment and/or retail sales show signs of further deterioration.

FM WMR 20160815-GBPUSDH4

XAU/USD (Gold) – Slightly bullish.  Gold is trapped in a range.  We believe rate hike expectation has been scaled back and expect the price to continue to move within 1334 and 1352 in the near term.

FM WMR 20160815-XAUUSDH4

OIL/USD (WTI Oil) – Slightly bullish.  The reversal signal highlighted last week has come to realisation.  The uptrend is likely to continue near term.  Possible to buy at dips.

FM WMR 20160815-OILUSDH1

Top News This Week (GMT+8 time zone)

UK: CPI y/y.  Tuesday 16th August, 4.30pm. We expect figures to come in at 0.4% (previous figure was 0.5%).

US: CPI m/m.  Tuesday 16th August, 8.30pm. We expect figures to come in at 0.1% (previous figure was 0.2%).

UK: Retail Sales.  Thursday 18th August, 4.30pm. We expect figures to come in at -0.1% (previous figure was -0.9%).

Read this next

Digital Assets

Himalaya Exchange customers seek release of frozen funds from DOJ

FormerFeds, a corporate defense and litigation service provider, has filed a lawsuit against the U.S. Department of Justice (DOJ) on behalf of over three and a half thousand Himalaya Exchange customers.

Digital Assets

Nubank, Circle, and Talos join forces for crypto adoption in Brazil

Nubank, the Brazilian neobank backed by Warren Buffett’s Berkshire Hathaway and Softbank Group Corp, announced new partnerships with cryptocurrency firms Circle and Talos.

Metaverse Gaming NFT

Flare onboards Ankr, Figment, Restake, and NorthStake as validators

Flare, an EVM smart contract platform known for its focus on blockchain data utility, has announced a major step in its development. The platform has onboarded leading infrastructure providers, including Ankr, Figment, Restake, and NorthStake.

Digital Assets

Sui Joins DeFi Leaders, Topping $100M in Bridged USDC

Sui, the groundbreaking Layer 1 blockchain created by the technology experts who led Meta’s Diem blockchain initiative and created the Move smart contract language, continues its explosive ascent in decentralized finance (DeFi). This week, it surpassed $100 million in bridged USDC. 

Digital Assets

Poloniex hit by UK regulator, listed as ‘unauthorised’ exchange

The UK’s Financial Conduct Authority (FCA) has added the cryptocurrency exchange Poloniex to its warning list of non-authorized companies. Poloniex, which is based in Seychelles, has experienced four hacks in the last two months and is affiliated with entrepreneur Justin Sun.

Industry News

Exclusive Markets is Proudly ISO/IEC 27001:2013 Certified by MSECB for Unparalleled Commitment to Information Security

Exclusive Markets, a leading name in the FINTECH sector, proudly announces the attainment of ISO/IEC 27001:2013 Certification by the MSECB. This esteemed certification highlights Exclusive Markets’ persistent commitment to fortifying information security within its cutting-edge trading technology. 

Digital Assets

SEC is discussing ‘technical details’ of Bitcoin EFTs ahead of approval

Discussions between the U.S. Securities and Exchange Commission (SEC) and asset managers seeking to list Bitcoin exchange-traded funds (ETFs) have reportedly advanced to key technical details.

Digital Assets

Versatus Labs Reaches $50 Million Valuation Following $2.3 Million Seed Funding Round

Versatus Labs, a peer-to-peer web services protocol aiming to help Web2 developers transition to Web3, has completed a $2.3 million funding round at a $50 million valuation led by key investors in the Web3 space including NGC Ventures and Republic Crypto. The latest funding round aims to help the company develop the ‘world’s first stateless roll-up’, Versatus LASR. This follows Versatus Labs’ recent pivot from Layer 1 solutions to Ethereum scaling solutions. 

Digital Assets

Binance ex-chief’s sentencing looms as court accepts his guilty plea

A U.S. district judge has accepted a guilty plea from former Binance CEO Changpeng Zhao (CZ) on charges related to anti-money laundering violations. The plea was accepted by Judge Richard Jones in the U.S. District Court for the Western District of Washington in Seattle.