RBNZ opts for 50 bps cut, FOMC Minutes ahead

VaselineOctober 9, 2024

0 4 minutes read

RBNZ opts for 50 bps cut, FOMC Minutes ahead

Here’s what you need to know on Wednesday, October 9:

Financial market action remains choppy midweek as investors search for the next catalyst. The US economic calendar will present data on wholesale trade inventories for August. Later in the day, the US Treasury will hold an auction of 10-year notes and the Federal Reserve (Fed) will publish the minutes of its September policy meeting.

PRICE USD this week

The table below shows the percentage change in the US dollar (USD) against the major listed currencies this week. The US dollar was strongest against the New Zealand dollar.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.08%	0.22%	-0.10%	0.73%	0.92%	1.17%	-0.22%
EURO	-0.08%		0.19%	-0.16%	0.68%	0.82%	1.08%	-0.33%
GBP	-0.22%	-0.19%		-0.39%	0.50%	0.63%	0.92%	-0.40%
JPY	0.10%	0.16%	0.39%		0.83%	1.01%	1.21%	-0.08%
CAD	-0.73%	-0.68%	-0.50%	-0.83%		0.22%	0.43%	-0.94%
AUD	-0.92%	-0.82%	-0.63%	-1.01%	-0.22%		0.30%	-1.10%
NZD	-1.17%	-1.08%	-0.92%	-1.21%	-0.43%	-0.30%		-1.33%
CHF	0.22%	0.33%	0.40%	0.08%	0.94%	1.10%	1.33%

The heatmap shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose the US dollar in the left column and move along the horizontal line to the Japanese yen, the percentage change shown in the box will be USD (base)/JPY (quote).

The U.S. dollar (USD) index, which tracks the greenback’s valuation against a basket of six major currencies, ended a second straight day essentially unchanged on Tuesday. The index is up slightly and remains above 102.50 in the European morning on Wednesday. The risk-averse market environment seems to be helping the USD to hold. At press time, U.S. stock index futures were down between 0.2 percent and 0.4 percent on the day. Meanwhile, China’s Shanghai Composite fell nearly 7 percent and Hong Kong’s Hang Seng lost more than 1 percent after Reuters reported that China’s Finance Ministry was set to launch a 2 trillion yuan fiscal stimulus package. yuan on October 12.

Following its October policy meeting, the Reserve Bank of New Zealand (RBNZ) decided to cut its policy rate by 50 basis points (bps) to 4.75% from 5.25%. In its policy statement, “the New Zealand economy is now in a position of excess capacity, encouraging the setting of prices and wages to adjust to an economy with low inflation,” the RBNZ noted. NZD/USD it came under heavy bear pressure in Asian trading hours and was last seen trading at its lowest level since mid-August below 0.6100.

Following Tuesday’s recovery attempt, EUR/USD remains on the back foot early Wednesday and retreats towards 1.0950.

GBP/USD it made small gains on Tuesday but failed to stabilize above 1.3100. The pair was last seen trading modestly lower on the day near 1.3080.

USD/JPY ended the day flat on Tuesday but started to stretch higher in the Asian session on Wednesday. At the time of writing, the pair was up 0.3% on the day at 148.60.

After a down start to the week, Gold extended its slide and hit a more than two-week low near $2,600 on Tuesday. Although XAU/USD erased a small portion of its daily losses later in the US session, it failed to muster any recovery momentum. In the European morning, gold is trading in the red at around $2,610.

RBNZ FAQs

The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are to achieve and maintain price stability – achieved when inflation, as measured by the Consumer Price Index (CPI), is between 1% and 3% – and to support maximum sustainable employment.

The Monetary Policy Committee (MPC) of the Reserve Bank of New Zealand (RBNZ) decides the appropriate level of the Official Cash Rate (OCR) based on its objectives. When inflation is above target, the bank will try to tame it by raising the key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. Conversely, lower interest rates tend to weaken the NZD.

Employment is important to the Reserve Bank of New Zealand (RBNZ) as a tight labor market can fuel inflation. The RBNZ’s target of “sustainable maximum employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration of inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, eventually prices will rise faster and faster, forcing the MPC to raise interest rates to keep inflation under control,” the bank says .

In extreme situations, the Reserve Bank of New Zealand (RBNZ) can implement a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim of increasing the domestic money supply and stimulating economic activity. QE usually leads to a weaker New Zealand dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the central bank’s objectives. The RBNZ used it during the Covid-19 pandemic.

VaselineOctober 9, 2024

0 4 minutes read

PRICE USD this week

RBNZ FAQs

Vaseline

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