Fed in tight spot as US inflation remains weak while labour market in good shape, fears of division between Fed policymakers allayed; bank CEOs say Aust's housing bubble won't burst; NZ$ = 68.6 US¢, TWI-5 = 72.6

Here’s my summary of the key events overnight that affect New Zealand.

Cheap petrol has seen consumer prices in the US record their biggest drop in eight months in September. The Consumer Price Index fell 0.2% last month and remained unchanged from September last year. However taking energy and food costs out of the equation, prices rose by 0.2% over the month and 1.9% over the year. 

While persistently low inflation poses a major hurdle to an interest rate hike this year, the US labour market indicates otherwise as new applications for unemployment benefits fell to a 42-year low last week. 

New York Fed President William Dudley has come out saying that if the US economy evolves in line with his forecasts, he’d favour lifting rates later this year. Yet he notes recent data out of the US indicates the economy is slowing, and the weakening Chinese economy isn’t helping. 

Dudley has also responded to criticisms the Fed is giving mixed messages about what is plans to do with rates, saying policymakers are not as divided as it may appear and are generally operating under the same framework.

As we contend with Auckland’s housing crisis, the Aussies are debating whether their housing bubble will burst. The chief executives of two of Australia’s big four banks have dismissed predictions of a sharp correction in their house prices.

The Sydney Morning Herald reports that while Macquarie Group, Credit Suisse and Merrill Lynch have all flagged growing risks in housing, the National Australia Bank and Westpac have come out saying there’s nothing to worry about. They say that while the growth rate will subside, it will remain positive thanks to the country’s population growth and geography limiting the supply of new houses. Prices in Sydney and Melbourne have climbed around 16% in the past year.  

In New York, the UST 10yr yield benchmark has inched up today, but remains low at 2.01%.

The US benchmark oil price has continued to drop today to US$46/barrel. The Brent price is at US$49/barrel. US crude stockpiles have recorded their largest weekly increase since April. There is a build up of inventories as refiners shut for maintenance after the peak summer season. 

The gold price has risen again to US$1,186/oz.

The New Zealand dollar has continued to make substantial gains today, as a flow of weaker than expected economic data out of the US hampers its currency. The NZD has hit a four-month high against the US, at 68.6 US¢. It’s also risen to 93.5 AU¢ and 60.3 euro cents. The TWI-5 is up nearly 100 basis points to 72.6.

If you want to catch up with all the local changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here »

Daily exchange rates

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