RBNZ Bites the Bullet

RBNZ has cut rates, emphasising uncertainties over the economic outlook - will they be the first of many central banks to cut?

Previous Day's Market Highlights

The main event of the last 24 hours came overnight, where the kiwi dollar has recovered from a brief drop of more than 1% after the Reserve Bank of New Zealand (RBNZ) announced a 25bps cut to the Official Cash Rate. Rates now stand at a fresh record-low of 1.50%, with the prospect of further rate cuts on the horizon after Governor Orr emphasised the large uncertainties surrounding the projected rate path in addition to expressing concern over the impacts of weak business investment along with the US-China trade war. The RBNZ may be the first of many global central banks to cut rates after a recent dovish policy shift and softening of economic activity. After an initial fall of more than 1% after the rate decision, the kiwi dollar has recovered, trading just 0.2% lower this morning. 

Elsewhere, FX markets remained confined to familiar trading ranges on Tuesday as a lack of major economic releases combined with apprehension over escalating US-China trade tensions to dampen volatility. The pound recorded a modest decline, the 2nd consecutive daily loss, after markets expressed scepticism over the desire of both the Conservative and Labour parties to strike a bipartisan Brexit deal. Further weighing on the pound was the inevitable confirmation the European elections will take place in the UK along with a rumoured new Brexit deadline of the beginning of July, such that the UK’s MEPs would not take their seats. The elongated timeframe further dampened hopes of a deal, with the pound losing 0.35% against the dollar and 0.25% against the euro over the day. 

Other majors were similarly rangebound, with the euro ticking up by 0.1% and the dollar gaining 0.2%, largely due to increased demand for safe-haven currencies. Economic data was largely ignored throughout the European and North American sessions, with releases being of low importance. However, data showed job openings in the US bouncing back from February’s 11-month low. The only other notable release was Ivey PMI figures from Canada, which rose to their highest level since December 2018, though the index is a typically volatile indicator hence little movement in the loonie. Overnight, trade data from China showed a continued large trade surplus with the US. Of more interest however was a surprise 4% year-on-year increase in imports, a possible sign of improving domestic demand, something that may underpin the Aussie dollar going forward due to the two nations’ close trading relationship. 

In other markets, global equities lost ground on Tuesday as concerns continued to mount over escalating US-China trade tensions. In Europe, the pan-continental Stoxx 600 fell by 1.5% to its lowest level in 5 weeks. Markets experienced a similar fall in the US, with the benchmark S&P 500 losing 1.65%. Oil prices were also dented by concerns that an intensifying trade war would weaken demand, with both Brent and WTI losing more than 1.5%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1650 1.1776 1.1512 2.24%
GBP/USD 1.3055 1.3176 1.2866 2.35%
EUR/USD 1.1205 1.1323 1.1110 1.88%
GBP/AUD 1.8595 1.8882 1.8093 4.18%
GBP/NZD 1.9807 2.0021 1.9242 3.89%
GBP/CAD 1.7565 1.7728 1.7300 2.41%

Today's Market Highlights

Today’s economic calendar is incredibly bare, with no major releases due from the UK or the US. For the pound, focus is likely to remain on the ongoing cross-party Brexit talks, though markets seem to have dampened down their expectations of a deal being reached imminently. Investors may also keep one eye on the weekly Prime Minister’s Questions session in Parliament, though this is more likely to be for entertainment value than to gleam any new information. Meanwhile, for the dollar, a continued escalation of trade tensions will be on the radar, with the greenback likely to see continued strong demand amid escalating tensions due to the currency’s status as a safe-haven. 

From the eurozone, today’s major release was this morning’s German industrial production figures, which showed production declining at an above-forecast 0.9% in March, compared to an expected decline of almost 3%. The release has done little to move the euro, with the single currency likely to be confined to recent trading ranges throughout the day. Today’s only other notable release will be housing starts from Canada, though this data point typically has little impact on markets. Overnight, CPI inflation data from China will be eyed, with expectations for inflation to increase to 2.5% on a year-on-year basis. 

Central bank speakers are likely to be of more interest than economic data today, with the most attention falling on ECB President Draghi’s address at midday. Markets will be on watch for any comments relating to the recent uptick in eurozone inflation along with hints of the future monetary policy path, though the latter largely depends on Draghi’s successor later this year. Attention will also be on speeches from dovish BoE MPC member Ramsden along with the Fed’s Brainard.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:15am GBP BoE's Ramsden Speech
12:30pm EUR ECB President Draghi Speech
1:15pm CAD Housing Starts (y/y - Apr) 196.4k 192.5k