Today at their latest meeting, the Reserve Bank of New Zealand took the decision to lower their rate by 25 basis points to 3.25%. The head of the bank, Graeme Wheeler, indicated that a loosening of monetary policy is a wise decision in order to combat inflationary pressures and weak demand. The realization of this measure is also necessary to keep inflation stable and in the target zone over the medium term. Furthermore, he announced the possibility of further relaxation of monetary policy, depending on upcoming macroeconomic data. In addition, as commodities’ prices fall and there is an expected weakening of demand, the New Zealand dollar is down from its peak in April, but remains overpriced. In light of a worsening balance of trade on their current account, a downward correction is necessary to take New Zealand’s exports back to a more sure-footed path.
The New Zealand/US dollar pair is trading around 0.7017 on news of the drop in the base rate to 3.25% by the RBNZ and the inclination towards a further relaxation of policy. This is the lowest the rate has been since Q3 of 2010.
According to data published today on Australia’s labour market, unemployment was down in May to 6% against April’s 6.1% and the expected growth to 6.2%. Job creation in May was up by 42,000 against a 13,700 increase the month before and the forecasted growth of 12,100. These kinds of figures only lead one to believe that the Reserve Bank of Australia will put off its interest rate hike.
Strong data such as that mentioned above has facilitated a growth in the rate of the Australian dollar against its US counterpart: the pair jumped from 0.7719 to a maximum of 0.7792. Against the New Zealander the Aussie hit 1.1063 from 1.0977: the highest since November 2014.
A set of statistics was also published about China: manufacturing production was up by 6.1% in May against April’s 5.9% and an expected growth of 6% YOY. Since the start of the year, the indicator has grown by 6.2%. At the same time, investment in key funds has increased by 11.4% between January and May this year, although it was expected to rise by 11.9%. Retail sales increased, as expected, by 10% with the same value in April. On the whole China isn’t seeing a massive growth and due to this the market expects a further relaxation of monetary policy.
Some data about retail sales and the number of initial requests for unemployment benefit in the US will be published today. The speech that the Governor of the Bank of Canada, Stephen Poloz is due to give is also worth a listen.