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The RBNZ Gives the Kiwi a Boost ahead as the Focus Shifts to the EUR and USD

Bob Mason

Earlier in the Day:

It was a busy day on the Asian economic calendar this morning. The Kiwi Dollar and the Aussie Dollar were in action in the early part of the day.

Key stats included the electronic credit card retail sales figures out of New Zealand and consumer confidence figures out of Australia,

On the monetary policy front, the RBNZ was also in action, delivering its first monetary policy decision of the year.

For the Kiwi Dollar

Electronic card retail sales fell by 0.1% in January, following on from a 0.9% decline in December. Economists had forecast a 1% rise.

According to NZ Stats,

  • Spending on hospitality saw the largest decline in January, falling by 1%.
  • Groceries and liquor recorded a 0.3% decline, while spending on apparel and vehicles (excl. fuel) remained largely unchanged.
  • Spending on fuel increased by 1.5%.
  • Core retail spending fell by 0.2%, following a 1.0% decline in December.
  • The total value of electronic card spending, including the two non-retail categories (services and non-retail), rose by 0.3%. In December, spending had fallen by 0.6%.

The Kiwi Dollar moved from $0.64020 to $0.64017 upon release of the figures that preceded the RBNZ policy decision and press conference.

Monetary Policy

The RBNZ held rates unchanged at 1% this morning, which was in line with expectations. Salient points from the Rate Statement included:

  • Employment is at or slightly above its maximum sustainable level, while inflation is close to the 2% mid-point of the target range.
  • Low-interest rates remain necessary to maintain current employment and inflation levels.
  • Economic growth is expected to accelerate in the 2nd half of 2020, supported by both monetary and fiscal stimulus and favorable trade terms.
  • The outlook for government spending is positive as is the outlook for household spending growth.
  • Soft momentum in economic growth continued into 2020, with softer global growth in 2019 acting as a headwind to the domestic economy.
  • The global economy has shown signs of stabilizing, with trade tensions easing, while the coronavirus outbreak remains a downside risk.
  • The RBNZ assumes that any impact of the coronavirus to the NZ economy will be short-term and within the 1st half of 2020.

The Kiwi Dollar moved from $0.64118 to $0.64580 upon release of the rate statement and monetary policy statement. At the time of writing, the Kiwi Dollar was up by 0.87% to $0.6462.

Next up is the RBNZ Press Conference…

For the Aussie Dollar

The Westpac Consumer Sentiment Index jumped by 2.3% to 95.5 in February. In January, the index had fallen by 1.8% to 93.4. Economists had forecast a more modest 1.4% rise.

According to the latest Westpac Report,

  • The rise was attributed to easing concerns over the bushfires and a more optimistic RBA…
  • The spread of the coronavirus had a limited impact on sentiment, which was reportedly the case back during the SARS outbreak in 2003.
  • Looking at the components, contribution came from consumer sentiment towards the economic outlook.
    • Economic conditions the next 12-months increased by 5.4% to 89.3. This was still down by 13.3% over the year and well below the long-run average of 90.9.
    • Economic conditions next 5-years rose by 4.3% to 91.6. Whilst down by 8.5% from the previous year, the sub-index rose above the long-run average of 91.3.
    • Supported by the better sentiment towards the economic outlook, the time to buy a major household item sub-index rose by 2.7% to 116.4. While down by just 1.9% over the year, the sub-index sat well below a long-run average of 127.1.
  • The numbers were less impressive on the finance front, however.
    • Family finances vs a year ago fell by 1.0% to 81.2. Down by 9.2% over the year, the sub-index was well-below a long-run average 89.3.
    • The family finances the next 12-months rose by just 0.1% to 99.1.
  • The Unemployment Expectations Index increased by 0.6% to 134.7. Up by 12.3% over the year, the Index sat above a long-run average of 130.1, which is negative.

The Aussie Dollar moved from $0.67173 to $0.67202 upon release of the stats. At the time of writing, the Aussie Dollar was up by 0.19% to $0.6727.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.05% to ¥109.84 against the U.S Dollar.

The Day Ahead:

For the EUR

It’s a relatively quiet day ahead on the economic calendar. Industrial production figures are due out of the Eurozone later today.

Following some particularly disappointing production numbers out of France, Germany, and Italy, today’s figure will need to be particularly dire to move the dial.

Expectations are for production to fall by 1.5% in December, so expect the EUR to soften on any weaker numbers.

Outside of the stats, geopolitical risk is on the rise once more. Tensions return in Italy, with the Irish election result also raising some uncertainty. Things are not much better in Germany, as Merkel’s CDU Party sees Merkel’s chosen successor resign.

Expect chatter from Italy and Germany to garner plenty of attention. The last thing the EU needs is discord as it prepares to negotiate with Britain on trade.

At the time of writing, the EUR was up by 0.02% to $1.0918.

For the Pound

It’s a particularly quiet day ahead on the economic calendar, with no material stats due out of the UK to provide direction.

Economic data from the UK on Tuesday appeared to vindicate MPC members who decided to vote in favor of a hold on interest rates.

The UK managed to avoid an economic contraction, in spite of soft manufacturing and industrial production at the end of the year.

Hopes are that Johnson’s landslide victory will deliver a near-term boost to growth ahead of next month’s budget.

Whether the Pound can hold onto $1.29 levels and eye a return to $1.30 levels remains to be seen, however.

Much will depend on how the government progresses with key trading partners on trade talks.

At the time of writing, the Pound was up by 0.07% to $1.2961.

Across the Pond

It’s a quiet day ahead on the data front, with no material stats due out later today to provide the Greenback with direction.

The lack of stats will leave FED Chair Powell and his 2nd day of testimony in focus.

At the time of writing, the Dollar Spot Index was up by 0.04% to 98.765.

For the Loonie

It’s a quiet day ahead on the economic calendar. There are no material stats due out of Canada to provide the Loonie with direction.

Crude oil prices will influence on the day, with OPEC’s monthly report and the weekly IEA numbers due out later today.

The Loonie was up by 0.01% at C$1.3285 against the U.S Dollar, at the time of writing.

This article was originally posted on FX Empire

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