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RBNZ raise rates 25bps but sends NZD lower, UK inflation higher than expected

Good morning


RBNZ have managed to surprise the markets again. Last time it was with a 50bps rate rise, this time a 25bps rate rise but accompanied by a clear statement that rates are now at their peak at 5.5%. This comes after the market was looking for either a larger raise this time or at least a signal from RBNZ that rates are likely to have a higher peak. They added rates are likely to stay that way until Q3 2024, when they see the first cuts coming. They talk of the lag in the full impact of policy changes on the economy, the only bit I don’t get though is their comment that higher rates are still needed to achieve inflation goals. I don’t think they are done. However this is a far less hawkish move than the market imagined and NZD has fallen sharply as a result. GBPNZD which was around 1.9800 this time yesterday has traded up to almost 2.0300, now 2.0240, while AUDNZD has been dragged higher to above 1.0700 from 1.0570.


The move in higher GBPNZD has been helped by higher UK inflation numbers this morning, MoM coming in at 1.2% against an expected 0.8% and the YoY number at 8.7% was higher than the 8.2% expected. Still at least its back into single figures. The release did send GBP higher although as I type is giving up a lot of its gains, perhaps Baileys comments yesterday that it isn’t wise to fight inflation with very high rates has given the market reason to think we won’t see a knee-jerk reaction from BoE, even though BoEs Mann has said she still doesn’t think financial conditions are tight. For the record, GBPUSD currently 1.2420 having hit 1.2470 this morning, GBPJPY at 172.20 (hit 172.70) and GBPEUR 1.1530 having reached 1.1560. GBPCAD hit a low yesterday around 1.6715, that pair reached 1.6850 after the inflation numbers, now 1.6820.


Bailey did add that food producers are deliberately keeping food prices high to rebuild their profits and that lower raw material prices are not being passed on to the consumer. I take you back to my comment yesterday about my rising energy bills which seem to make no sense other than lining the profits of good old British Gas. We won’t have lower inflation if firms continue to keep prices artificially high.


Meanwhile hawkish ECB talk has done little to help EUR, with EURUSD at one month lows around 1.0775. Lagarde keeps telling us ECB want to get ifnaltion back to 2%, Nagel has said monetary tightening has not reached its end, indeed sees several more rate rises to come, while leading banks are also looking for higher ECB rates. The single currency just can’t seem to keep up with other major currencies.


Still no deal from the US over their debt limit, we now have a week to go before they reach the point they are unable to pay their bills. We have had US government closures before, back in October 2013 US museums and parks were closed due to a government shutdown, the first for 17 years, which lasted just over a couple of weeks. USD did weaken eventually, EURUSD traded up to 1.3800 or so, GBPUSD was around 1.6150 through that month but the reality is USD has been weakening for a few months already before then. There was no talk of default on bond payments mind you.


Not a lot on the calendar today although Fed minutes this evening could be interesting given Powell did pretty much signal a pause to the current rate rise cycle, perhaps we’ll see some more information on that although some decent US data recently may well have given the Fed cause to change their thinking since that meeting.


Enjoy the sunshine……..


- 09.00 German IFO

- 19.00 FOMC minutes


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