Little immediate response by NZD to RBNZ statement; rally by risk sensitive assets and bonds; decline in NZD/AUD has NZ TWI down nearly 1%

By Kymberly Martin

The USD index has traded on a gradual downward path since the US FOMC announcement yesterday morning. The NZD/USD has underperformed while the NOK has been the strongest performer.

Overnight, risk-sensitive assets and longer-dated bonds rallied together. The common thread appeared to be the market taking comfort from continued ratcheting down of projections for the Fed funds rate over the long-term.

The Euro Stoxx 50 closed up 2.3% while credit spreads narrowed. After its initial post-meeting bout of volatility, the USD settled into a steady decline yesterday. It found a floor in the early hours of this morning. The USD index now trades about 0.6% below its pre-FOMC level.

The NOK has gained 1.1% against the USD after the Norges Bank left its cash rate at 0.5% yesterday. Although expected by consensus, a notable minority of forecasters had been looking for a cut. Furthermore the Bank said rates are “most likely” to remain at current levels in the period ahead. This is a change from its prior suggestion of a possible reduction in rates. The USD/NOK now trades at 8.1350.

The GBP/USD is also stronger. It was on an upward path in the evening but appeared to gain an additional boost from comments made by BoE member, Forbes. Whilst she is known for her hawkish leaning, the currency pushed higher as she was reported saying she didn’t see the need for further stimulus. She argued that signs of weaker business investment may be offset partly by strong consumer spending and likely gains to exports. Further, the BoE may have miscalculated the impact of ‘Brexit’ uncertainty and might need to revise up its economic outlook. The GBP/USD now trades at 1.3080.

The JPY is a little weaker this morning. Having flirted with support at the 100.00 level the USD/JPY now trades at 100.90.

Yesterday morning, the post-US FOMC volatility settled down before the RBNZ’s meeting. The OCR review was quite similar to the August MPS. Critically, the core statement that “further policy easing will be required” remained intact.

Consequently the NZD/USD did not show a significant response, settling into a range for much of yesterday. From the evening it drifted a little lower to trade at 0.7300 currently. The NZ TWI has also traded lower, assisted by a declined in the NZD/AUD. The TWI now trades at 77.60, around 0.9% down from yesterday’s highs. This will be welcomed by the RBNZ that yesterday reiterated that; “A decline in the exchange rate is needed”.

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Daily exchange rates

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