Not for the first time this year a central bank down under has surprised by cutting rates, this time the Reserve Bank of New Zealand. Most in the markets were expecting rates to be kept on hold at 3.50%, but the RBNZ chose to make a quarter point cut to 3.25%. We were expecting the move to come later in the year, as house prices are still firm in the country. The central bank clearly has faith that proposed measures put in place by the government to curtail lending will work. The central bank are also seeing demand weakening this year and the currency falling further to put the “net external position on a more sustainable path”. Not surprisingly we have seen the kiwi weaken as a result, NZDUSD down to new lows for the year at 0.6998. The Bank of Korea also cut rates to a record low of 1.5%.
Elsewhere, there has been a marginal recovery of USDJPY after the move seen yesterday below the 123.00 level. Despite the move we’ve seen in Japanese bond yields, they have still dragged behind those seen elsewhere for the most part, so the yen is still the favoured currency against which to go long against the dollar. We’ve also seen the Aussie strengthen above the 0.7750 level in the wake of the latest labour market data, which showed a fall in the unemployment rate to 6.0% (from 6.2%), with both the full and part time employment measures rising. No surprise to see AUDNZD jumping up to new highs above the 1.10 level as a result of these overnight events. Focus later today is with US import prices, claims and retail sales. We’re seeing some further dollar strength emerge at the stat of the European session, more so against sterling and the euro.