#forex #forextrading The Big Picture • New Zealand returns to tightening path The Reserve Bank of New Zealand (RBNZ) kept its benchmark interest rate unchanged overnight, as was universally expected, but surprised the market by stating that the next move in rates was likely to be up. “Some further increase in the official cash rate is expected to be required at a later stage,” according to the statement that accompanied the decision. The RBNZ had moved to a neutral stance at its Oct. 30th meeting, when it said, “A period of assessment remains appropriate before considering further policy adjustment,” which left open the possibility that the next move would be a cut in rates. The change to a tightening bias sent NZD soaring. The move reaffirms my belief that NZD is likely to be the strongest of the commodity currencies, although it may still lose ground over time against the resurgent USD if milk prices fall further. • Oil continued to decline after the US Energy Information Administration said that supplies in the US rose unexpectedly last week and OPEC forecast that demand for its oil would fall in 2015. (Note however that OPEC still expects global demand for oil to increase next year, although it also cut its forecast for that slightly too.) To make matters worse, Saudi Arabia’s oil minister rejected the idea of cutting production. His comment – “Why should I cut production?” – makes a decisive dip in WTI below the round number of 60 in the near future all the more likely, in my view. • Australia’s unemployment rate rose to 6.3% in November from 6.2% in October as expected, but this was good news as it indicates discouraged workers are returning to an improving labor market. Employment jumped by 42.7k, almost double last month’s 24k. Nonetheless AUD was only slightly stronger against the USD, perhaps because of the continued decline in commodity prices and global stocks. I remain much more enthusiastic about NZD than AUD, which seems to be at the mercy of global risk appetite. • Today’s events: There are two central bank meetings today: the Norges Bank and the Swiss National Bank (SNB). At its last meeting in October, NorgesBank left its key policy rate unchanged at 1.5% while Governor Olsen noted that the outlook of inflation and output were broadly in line with their September projections. Yesterday it was announced that Norway’s CPI rate declined to +1.9% yoy in November from 2.0% yoy in October. Although the small decline in the inflation rate seems harmless, bearing in mind that the low oil prices have given rise to uncertainty over its growth outlook, NorgesBank could signal a rate cut early next year. This could prove negative for the Krone today. • As for the SNB, after Swiss voters rejected the “Save our Swiss Gold” referendum, the bank is most likely to reaffirm the EUR/CHF floor of 1.20 and to keep its benchmark interest rate close to zero. A press conference will follow the decision. The main question about Swiss monetary policy is whether they will institute negative interest rates. So far the market has not challenged the EUR/CHF floor significantly and so I believe they will hold fire on such a move until it’s absolutely necessary. • Also, the ECB will carry out its second targeted long-term refinancing operation (TLTRO) today. The size of the new liquidity injected will be known when it settles on Wednesday, 17th of December. Before then though, on Friday we have the announcement of next week’s repayment of the 3yr LTRO. This will provide some insights on the net new liquidity injected. Among the measures already adopted by the Bank, the TLTRO is expected to have the most sizable impact to the ECB balance sheet expansion. Hence, this is an important test of the current measures and could determine whether the ECB introduces a large scale QE program involving sovereign bonds. • In Europe, it’s CPI day. Germany’s final CPI for November is coming out but as usual the forecast is the same as the initial estimate. The French CPI for the same month is forecast to have decelerated. Sweden’s CPI is the inflation figure that will attract most of the attention. The county is expected to have fallen deeper into deflation in November. This could really hurt the Krona. The big question now is: what aces do the Riksbank have hidden in its sleeve for its meeting next week, since at their last meeting, policy makers cut rates to zero? Sweden’s unemployment rate for November is also coming out and is estimated to have declined by a percentage point. • In the US, headline retail sales are forecast to have accelerated. However, usually the focus is on retail sales excluding auto and gasoline, which is forecast to show a slowdown. That could weaken the dollar a bit. Initial jobless claims are expected at 297k, the same as the previous week. This will leave the 4wk moving average more or less unchanged. • During the European day, Bank of England Governor Mark Carney speaks at a news conference in London and Bank of Canada Governor Poloz will give a speech at the Economic Club of New York.
Posted on: Thu, 11 Dec 2014 10:38:12 +0000
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