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Forex & Equities: RBNZ Hikes 25bp; Aussie Employment; BOJ Preview

Posted by Akhilesh Ganti on Jun 11, 2014 10:52:00 PM

As expected the Reserve Bank of New Zealand(RBNZ) raised rates by 25bp bringing their Overnight Cash Rate(OCR) to +3.25%. The New Zealand Dollar surged sharply against all the majors as the tone of the accompanying statement was decidedly more hawkish than what the market was expecting. Rather than hint at a possible pause in the tightening cycle, the committee chose to focus on the economy's "considerable momentum" and the need to bring the OCR to a more "neutral level" in order to contain burgeoning inflationary pressures. In doing so they raised the probability of another hike, possibly as soon as next month, and resigned themselves to the uncomfortable prospect of a stronger NZD.

The salient points were:

  • Economy has considerable momentum
  • OCR's rise to a more neutral level is important
  • Overall inflation remains moderate
  • Speed, extent of rate rise will depend on data and inflation
  • High level of NZD is not sustainable

Australia's employment report (May): {Source: Bloomberg}

Country Event Period Survey Actual Prior Revision
Australia Employment Change May 10.0K -4.8K 14.2K 10.3K
  Unemployment Rate May 5.80% 5.80% 5.80% --
  Full Time Employment Change May -- 22.2K 14.2K 13.8K
  Part Time Employment Change May -- -27.0K 0.0K -3.6K
  Participation Rate May 64.70% 64.60% 64.70% --

A closer look at the details shows that this was not as bad as the headline number would appear to suggest. The full-time component coming out higher while part-timer's declining might indicate that a lot of the latter could have morphed into the former. RBA Governor Glenn Stevens comments after the last meeting, where he stated that while "there has been some improvement in indicators for labor market in recent months, but it will probably be some time yet before unemployment declines consistently", appear quite prophetic and should keep them on a neutral policy path for the foreseeable future. AUD/USD, after an initial lurch lower, stabilized and reverted back to it's pre-release levels.

BOJ is scheduled to announce the results of their monetary policy meeting tomorrow and the consensus is that they will stick with their current qualitative and quantitative easing framework.

Ranges:{WWM's New ALPHA Trader - DAILY charts [EUR, GBP, AUD, YEN, GOLD, OIL, DXY]}(click to enlarge)

FX 061214

Equities:{WWM's New ALPHA Trader - DAILY charts [Dow30, SP500, Nasdaq100, Nikkei225, China, HKG40, Nifty50, ASX200]}(click to enlarge)

STOCKS 061214

 

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