How Far Will the RBNZ Go? April Meeting Preview |
| How Far Will the RBNZ Go? April Meeting Preview Posted: 26 Apr 2016 08:00 PM PDT Investors are buying New Zealand dollars ahead of the Reserve Bank’s monetary policy decision. This demand suggests that traders don’t expect the RBNZ to signal any immediate plans to lower interest rates. Having just surprised the market with a rate cut last month, no additional easing is expected but when the Reserve Bank eased, they also warned that further stimulus may be required. So the big question is whether this view will be emphasized in April. The RBNZ’s primary concern last month was low inflation – the central bank lowered their 2016 Q1 annual inflation outlook from 1.2% to 0.4% and their Q4 2016 annual inflation rate to 1.1% from 1.6%. They worried that prices would remain low for some time and that domestic risks would contribute to falling inflation expectations. Thankfully consumer prices rebounded in the first quarter with the year over year rate ticking up to 0.4% from 0.1%. From an inflation perspective, the RBNZ has less to worry about but consumer spending, service and manufacturing activity weakened in the month of March, leaving the central bank with many areas of concern. So while the RBNZ may not go as far as lowering rates in April, they could maintain their dovish bias, which would renew the decline in the New Zealand dollar. Here’s a look at how New Zealand’s economy performed between the March and April meetings |
| April FOMC Preview – 3 Scenarios for the Fed and Impact on Dollar Posted: 26 Apr 2016 04:09 AM PDT In 24 hours the Federal Reserve will announce its monetary policy decision and everyone expects interest rates will remain unchanged. The Fed has done a great job of preparing the market for steady rates but no changes to monetary policy doesn’t mean no volatility for the U.S. dollar. The reason why the April FOMC meeting is important is because it will help to shape expectations for June. There’s no monetary policy in May so if the Fed wanted to prepare the market for possible tightening, they would need to tweak this month’s FOMC statement. The problem is that the odds of a dollar positive and negative outcome is roughly balanced. With the global markets stabilizing and commodity prices moving higher, the Fed has less to worry about internationally but domestically, growth has slowed. So even though no changes in monetary policy is expected at this month's meeting, the greenback could still have a meaningful reaction to FOMC based upon the Fed’s assessment of the economy. Now lets run through the possible scenarios: Scenario 1 – The FOMC statement remains virtually unchanged = Mildly negative for the dollar because it would imply an ongoing split within the Fed and reluctance to raise interest rates. Scenario 2 – Fed acknowledges deterioration in data and leaves out risk assessment = Dollar Bearish Scenario 3 – Fed acknowledges deterioration in data but describes it as transitory AND the risk statement returns = Dollar Bullish The following table shows how the U.S. economy performed between March and April. An initial glance shows more deterioration than improvements with consumer spending, labor market activity, inflation, production and trade weakening. However there are glimmers of hope. The rally in U.S. stocks helped to boost consumer confidence as measured by the Conference Board's report, consumer prices are still moving upwards as gas prices increased. New and pending home sales rebounded and most importantly manufacturing and service sector activity accelerated. With average hourly earnings on the rise, the Fed could argue that the economy will regain momentum in the near future and with prices rising, they need to get ahead of inflation expectations. In other words while the data suggests that the Fed should be less hawkish, they could also find reasons to stick to their plan of raising rates twice this year. <table> |
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