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Forex Flash: RBNZ expected to release hawkish statement – NAB

The RBA held their cash rate at 3% this week and the RBNZ is likely to leave their cash rate at 2.5% next Thursday. “Despite this calm however, divergent RBA and RBNZ cash rate paths remain likely as 2013 progresses.” Notes the NAB Analyst Team. On the RBA, they left cash at 3% but they also left their easing bias in place. For now it’s an easing bias with little intent and to cut again the economy will need to deteriorate.

Deterioration is still the risk (as the peak in the mining boom passes) although it’s unlikely to happen by their next meeting on April 2. So on hold again on April 2 (a cut is 27% priced), though NAB economists still see the RBA having to cut by more than the 35bps that are priced by December.

Important data next week is NAB Business survey and employment data. In NZ, the RBNZ delivers their MPS next Thursday. “The short of it is that while there are some headwinds (drought) the RBNZ’s concern about the buoyant housing market have likely risen in recent months and this will prompt a hawkish statement and an interest rate increases coming earlier than expected.” the team predicts. Markets are pricing just one 25bps hike in the year ahead and BNZ economists expect 75bps of hikes by then.

Forex Flash: Productivity slowdowns portend bearishness in equities and rates – Goldman Sachs

Two of the ‘jointly bearish’ scenarios that we considered in our previous analysis were effectively driven by ‘productivity risk’. That is, the risk that productivity growth would slow and drag down the trajectory of long-run growth. The three scenarios that we identified were that inflation expectations ‘drag anchor’ as productivity growth slows; foreign investors turn negative on US sovereign risk; and retail sentiment abandons fixed income.
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Forex: GBP/JPY in 2-week highs, around 143.00

The renewed weakness surrounding the Japanese yen is pushing the cross to the area around 143.00, printing fresh 2-week highs at the same time...
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