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NZ dollar weaker after Fed split on outlook for further US cuts

Thursday 19th September 2019

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The New Zealand dollar weakened after the US Federal Reserve cut rates but were split over the outlook for further cuts.

The kiwi was trading at 63.22 US cent at 7:50 am from 63.36 US cents at 5pm yesterday. The trade-weighted index was at 70.21 points from 70.34.

The Federal Reserve cut rates by 25 basis points to 1.75-2 percent as widely expected. But the decision wasn’t unanimous with seven committee members voting in favour, two voting to keep rates unchanged and one calling for a 50 basis point cut. 

According to the statement, the rate cut "supports the committee's view that sustained expansion of economic activity, strong labour market conditions, and inflation near the committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain."  It reiterated that in determining the timing and size of future adjustments it would continue to "assess realised and expected economic conditions." 

More importantly for markets, policymakers - at the median - expect rates to stay within the new range through 2020, although seven of 17 policymakers projected one more quarter-point rate cut in 2019.

“Future Fed cutting action might still occur, but it’s not the slam dunk that some were expecting and that made the greenback look relatively attractive,” said Kiwibank trader Mike Shirley.

US President Donald Trump was quick to respond, tweeting that Fed Chair Jerome Powell and the Federal Reserve "fail again." 

The market’s attention will now shift to New Zealand’s second-quarter gross domestic product data, due at 10:45am.

The median in a Bloomberg poll predicts gross domestic product expanded 0.4 percent in the three months ended June 30, slowing from a 0.6 percent pace of growth in the March quarter, and below the Reserve Bank's forecast 0.5 percent. A weaker result will add to the view that the RBNZ will cut interest rates further this year. 

Australian labour data today will also be closely watched, particularly in light of the Reserve Bank of Australia’s heightened sensitivity to developments in the labour market, said ANZ Bank FX/rates strategist Sandeep Parekh.

The New Zealand dollar was at 92.45 Australian cents from 92.52, at 50.54 British pence from 50.74, at 57.25 euro cents from 57.24, at 68.51 yen from 68.54 and at 4.4784 Chinese yuan from 4.4895.


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