NZD Update

The RBNZ met last week for their latest OCR decision. The outcome was that of a ‘no move’ but they did say they are likely to begin tightening ‘over the coming months’. Analysts have jumped on that comment and are now speculating about a June or July start to official cash rate hikes.

Last week’s milk price forecast from Fonterra for the coming year was revised upward which adds pressure on the RBNZ to hike rates. This among other recent positive data for the NZ economy has influenced the market to price in a series of rate rises over the coming year. However the rise of the OCR is reliant on how the coming data plays out. Global uncertainty still remains so although a sequence of rate hikes has been priced in over the coming year that may not actually be the case and the start stop nature of economic recovery may necessitate a pause in the cycle at some point.

The NZ dollar was supported by Mondays ANZ Commodity Price Index for April improving for the fourteenth month in a row (4.9% up on the March figure) taking it to another record high. Tomorrow has the release of the first quarter NZ labour figures with both the unemployment and employment numbers expected to go fractionally in the right direction for the first time in a year – should this occur the NZD will again react positively.

A lot of focus over the past week economically speaking has been on Greece’s debt and the Eurozone’s ability to handle it. Over the weekend Europe’s leading finance ministers agreed on a rescue package of 110 Billion Euros to be made available over three years, however as we all know just agreeing on an aid figure won’t make the problem go away, so expect to hear more on this over the coming weeks.

Sterling NZ Dollar has been heading in one direction over the past week and that is downwards. A strengthening domestic outlook for New Zealand coupled with the past weeks problems in the Eurozone have influenced the movement of the rate from GBPNZD 2.15 mid last week down to 2.085 early this week. The UK General Election takes place on Thursday so expect some volatility surrounding that.

The problems in Greece and the knock on effect to the rest of Europe have dominated the finance news over the past week therefore it isn’t surprising to report that the Euro has lost ground. Having sat around EURNZD 1.85 at the beginning of last week it has traded downward to now sit at the EURNZD 1.80 mark.

Although the economy in the US is picking up slowly the FOMC are sitting tight at present and are not likely to raise interest rates soon. Inflation is not a threat and unemployment is still high so in very rudimentary terms the US’s recovery could be viewed as fractionally behind New Zealand’s. The NZDUSD rate has moved up in the NZ dollar’s favour from NZDUSD 0.711 to 0.730 in the past week.