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Central Bank guidance

Published March 28, 2019

By Nicholas Cork

The RBNZ flipped the market on its head yesterday with a change in stance from neutral to “the more likely direction of our next OCR move is down.” The NZ central bank cited a gloomier global outlook, particularly in their major trading partners – Australia, Europe, and China. The change in stance follows similar moves by other central banks and adds to speculation the Reserve Bank of Australia (RBA) will have to ease policy at some point. The market is getting used to a lack of consistent forward guidance (guessing?) from central bankers after promises that they would give better guidance, hence the current volatility around CB meetings now…

The impact on NZDUSD and AUDUSD was swift with them falling 130 and 75 points respectively, to result in a 150-point gain for the AUDNZD.  Locally the odds of a rate cut have moved closer with punters now tipping a cut as soon as August. Possibly forcing the RBA’s hand is a local index on inflation expectations which has swung lower to hit the lowest reading since the index began in 2016 and suggests the RBA may not hit the mid-point of their targeted inflation band.  Also, not aiding was a massive drop in Chinese Industrial profits however there are signs that China is bottoming.

Brexit is still going nowhere with Mr. Corbyn saying that Mrs. May’s Brexit negotiations have been about party management, not principles or the public interest…

Unfortunately, AUD looks like 0.7050/0.7150 again…

NZDUSD – Reuters