“RBNZ rates will stay on hold for a considerable time.”
The RBNZ kept its official Cash Rate on hold this morning when it released its first monetary policy statement for 2018 and the statement was far more bearish than bullish with the final paragraph saying “Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.” A final comment such as this gives traders reason to believe the RBNZ is not likely going to raise the official cash rate in 2018 and in fact the last 5 words suggest they may need to lower the official cash rate. The statement may have been an attempt by the RBNZ to lower the value of the Kiwi Dollar which has remained stubbornly high given the slide in the Aussie Dollar recently. A lower Kiwi Dollar makes the Kiwi economy more competitive and will help boost inflation and growth. Traders inside investment banks and hedge funds may have been waiting to hear from the RBNZ before shorting the Kiwi and if this is the case they now have reason to sell the Kiwi Dollar off to lower levels.
The Aussie Dollar continued its slide lower as US 10 Year Treasury Yields jumped back to 2.85% on Wednesday and threaten to reach over 3% in coming weeks. The US Dow Jones index at one stage was up 500 points and erased all of those gains in the afternoon trading session once the yield on the 10 Year rallied again. The rotation of money from stocks into fixed income (bonds) is going to continue in the USA and that is exactly why I do not believe the sell-off in the stock market is anywhere near finished.
The Bank of England will release its first policy statement for 2018 today and traders will be eager to read and hear about any forward guidance on UK interest rates. The BOE is expected to raise the official cash rate in the first 6 months of 2018 after saying as much in late 2017. The UK economy is ticking along nicely and will reap the rewards of an improving Euro Area economy which is the UK’s biggest trading partner. The Pound has been rising in value against most of its rivals for the past 6 months because traders have been pricing in their expectation of higher interest rates in the UK. I expect this trend will continue in coming months as interest rates normalise in the UK between 2018 – 2020 and the BOE raise their official cash rate before the European Central Bank.
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About the Author: Andrew Barnett
Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).
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