Life goes on outside the US and Donald Trump’s win.
While markets reversed and retraced the big falls of Wednesday in Asia, the US and Europe (particularly in the futures market), to end a day of turmoil mostly positive, Thursday morning saw policy being changed with the Reserve Bank of NZ cutting its key interest rate once more this year to a new low of 1.75%.
The Australian market looks like opening up with a solid gain of well over 100 points after falling by just over 100 points on the ASX 200 yesterday as news of the prospective Trump win strengthened.
Predictively the Kiwi dollar jumped by around half a cent to be around 73.40 in early Asian trading in the wake of the RBNZ decision. The Aussie dollar was trading around 76.50 after swinging from a high of 77.66 to a low of 75.85 US cents on a very busy night of dealings.
Oil and gold edged higher – the latter fell as investors realised the sky hadn’t fallen in at the news of Trump’s election win.
The Kiwi central bank again left its highly accommodative monetary policy in place, even though economists think this is the last rate cut. Once again Mr Wheeler singled out the current ‘high’ value of the Kiwi dollar for particular mention, making clear to markets that the central bank continues to want to see it at a lower level to the US dollar in particular.
“Weak global conditions and low interest rates relative to New Zealand are keeping upward pressure on the New Zealand dollar exchange rate. The exchange rate remains higher than is sustainable for balanced economic growth and, together with low global inflation, continues to generate negative inflation in the tradables sector. A decline in the exchange rate is needed, “ Mr Wheeler said in today’s statement.
The RBNZ Governor repeated comments from earlier decisions in this morning’s statement: “Monetary policy will continue to be accommodative. Our current projections and assumptions indicate that policy settings, including today’s easing, will see growth strong enough to have inflation settle near the middle of the target range. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.”
But it was a move widely expected by financial markets, and came irrespective of the US election, governor Graeme Wheeler said the kiwi dollar remained stronger than was sustainable, boosted by New Zealand’s relatively strong interest rates.
“Political uncertainty remains heightened and market volatility is elevated,” Wheeler said in the statement.
"Domestic growth is being supported by strong population growth, construction activity, tourism, and accommodative monetary policy. Recent dairy auctions have been positive, but uncertainty remains around future outcomes. High net immigration is supporting growth in labour supply and limiting wage pressure.
"House price inflation remains excessive and is posing concerns for financial stability. Although house price inflation has moderated in Auckland, it is uncertain whether this will be sustained given the continuing imbalance between supply and demand.
"Headline inflation continues to be held below the target range by ongoing negative tradables inflation. Annual CPI inflation was weak in the September quarter, in part due to lower fuel prices and cuts in ACC levies. Annual inflation is expected to rise from the December quarter, reflecting the policy stimulus to date, the strength of the domestic economy, and reduced drag from tradables inflation,” Mr Wheeler said in his statement.
"Significant surplus capacity exists across the global economy despite improved economic indicators in some countries. Global inflation remains weak even though commodity prices have come off their lows. Political uncertainty remains heightened and market volatility is elevated.
Domestic growth is being supported by strong population growth, construction activity, tourism, and accommodative monetary policy. Recent dairy auctions have been positive, but uncertainty remains around future outcomes. High net immigration is supporting growth in labour supply and limiting wage pressure.
"House price inflation remains excessive and is posing concerns for financial stability. Although house price inflation has moderated in Auckland, it is uncertain whether this will be sustained given the continuing imbalance between supply and demand.
"Headline inflation continues to be held below the target range by ongoing negative tradables inflation. Annual CPI inflation was weak in the September quarter, in part due to lower fuel prices and cuts in ACC levies. Annual inflation is expected to rise from the December quarter, reflecting the policy stimulus to date, the strength of the domestic economy, and reduced drag from tradables inflation.”
