RBNZ keeps OCR at 2%; Divided FOMC keeps interest rates unchanged but says case for rate hike has strengthened; BoJ overhauls policy focus; UST 10yr yield at 1.69%; oil and gold up; NZ$1 = 73.6 US¢, TWI-5 = 76.7

Here’s my summary of the key events overnight that affect New Zealand, with news the Federal Reserve has kept interest rates on hold for the sixth time in a row. 

Yet a divided Federal Open Market Committee says the case for a rate hike has strengthened, indicating a move is likely by the end of the year. Markets have their bets on December, following the US Presidential election. 

Fed officials have scaled back their expectations for future hikes, now seeing two rather than three increases for next year. They expect inflation to rise to its 2% target in the medium term.

The US central bank is continuing to tread cautiously amid concerns around global risks and inconsistent data. It’s used the same qualifier it used in its July statement, saying the labour market will strengthen “somewhat further”.

It says: “Although the unemployment rate is little changed in recent months, job gains have been solid, on average. Household spending has been growing strongly but business fixed investment has remained soft.”

The Bank of Japan has taken a more brazen approach towards achieving its inflation target. It’s made an abrupt shift towards targeting interest rates on government bonds, after years of money printing has failed to jolt its economy out of stagnation.

While the bank reassures it will keep buying large amounts of bonds and riskier assets, the policy reboot opens the door to an eventual winding down of its huge asset purchases. It is also an attempt to repair some of the damage caused by its shock move to negative rates early this year.

A Morgan Stanley analyst describes the bank as starting to “pull back some of its troops from the battlefront”.

Other central banks, struggling to revive growth, are keeping a close eye on the BoJ’s radical stimulus efforts. 

Back home, the Reserve Bank of New Zealand has kept the Official Cash Rate on hold at 2.0%. RBNZ Governor Graeme Wheeler says: “Monetary policy will continue to be accommodative. Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range.” See this story for more. 

In New York the UST 10yr yield remains at 1.69%.

The US benchmark oil price has jumped above US$45 a barrel, while the Brent benchmark is just below US$47 a barrel. 

The gold price is up to US$1,324/oz.

The New Zealand dollar [as at 7.50am before the RBNZ announcement] has jumped following the Fed’s announcement to 73.6 US¢. It’s dropped in the last 24 hours to 96.5 AU¢, and risen to 65.8 euro cents. The TWI index has inched up to 76.7.

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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for(i=0;i

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