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NZ dollar treads water ahead of FOMC statement

Tuesday 19th March 2019

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The New Zealand dollar was little changed with most investors taking to the sidelines ahead of the Federal Reserve’s Open Market Committee decision due 7am Thursday, New Zealand time.

The kiwi was trading at 68.57 US cents at 5pm in Wellington from 68.49 at 8am. The trade-weighted index was at 74.24 from 74.18.

“The world is waiting for the FOMC – the two-day meeting that starts tonight,” says Peter Cavanaugh, the senior client advisor at Bancorp Treasury Services.

The market will be wanting to see the Fed repeat that it will be “patient” about raising interest rates and whether it will say anything about unwinding the still US$4 trillion dollar stockpile of bonds it built up in reaction to the global financial crisis.

The stockpile has fallen from a peak of about US$4.5 trillion as the Fed allowed bonds to mature and didn’t replace them and that has a similar impact on activity as raising interest rates.

The Reserve Bank of Australia released the minutes of its last meeting earlier today and “didn’t display any new sentiment, they just expressed it more forcefully,” Cavanaugh says.

The RBA said its current stance with its cash rate at 1.5 percent is supporting jobs growth and a gradual lift in inflation.

“However, members noted the significant uncertainties around the forecasts remained, with scenarios where an increase in the cash rate would be appropriate at some point and other scenarios where a decrease in the cash rate would be appropriate,” it said.

“The probabilities around these scenarios were more evenly balanced than they had been over the preceding year.”

Yet another uncertainty is what happens to the Brexit deadline the UK supposedly faces on March 29.

Britain’s Prime Minister Theresa May will be heading to the European Council summit on Thursday to seek an extension of that deadline. The British parliament’s speaker, John Bercow, has ruled out a third vote unless May can come up with a substantively different Brexit proposal.

Additionally, it appears a hoped-for summit to ink a US-China trade deal has been postponed after Washington tried to push a one-way enforcement framework which would allow it to slap tariffs on China for non-compliance without China being allowed to retaliate.

China’s Ministry of Foreign Affairs has announced the schedule for President Xi Jinping’s trip to Europe later this month and it doesn’t include a stopover in Washington.

The New Zealand dollar was trading at 96.50 Australian cents from 96.48, at 51.63 British pence from 51.67, at 60.42 euro cents from 60.39, at 76.27 yen from 76.28 and at 4.6053 Chinese yuan from 4.5964.

The two-year swap rate was at 1.8148 percent from 1.8257 on Monday; the 10-year swap was at 2.3275 percent from 2.3525.

(BusinessDesk)



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