This afternoon the little bank from down under announced it was raising its overnight cash rate (OCR) by 25 basis points to 2.75%. There is no question that the New Zealand economy has been growing (as has private credit for housing) but the KIWI has been elevated by the strength of the economy and the huge global demand for New Zealand commodities–dairy and other agricultural products. Previously, the RBNZ has refrained from raising the OCR because of the strength of the KIWI versus the Aussie dollar and other commodity-based currencies. But the improvement in global financial conditions gave Governor Graeme Wheeler reassurance for increasing the interest rate. Wheeler noted that “the high exchange rate remains a headwind to the tradables sector. The bank doesn’t believe the current level of the exchange rate is unsustainable in the long run.” The market had been expecting the Bank to raise rates so the initial market reaction was a short selloff but within two minutes the KIWI was trading higher and actually closed on its high of the day in the spot market. If the RBNZ doesn’t intervene, which it shouldn’t, the NZ currency should hold up on the crosses, especially with the high yield on its 10-year note. Finally, one bank breaks out of the pack, even in the face of a potential slowdown in China.
Posts Tagged ‘Gazprom’
Notes From Underground: FED, Dealing Three Card Monte on the Potomac
December 19, 2013In a bow to acronym manufacturing, I placed the idea of TAPER ON, TAPER OFF (TOTO). We got a taper but it was offset by the Fed’s forward guidance on the unemployment threshold.In the FOMC statement the FED clearly said, “The Committee now anticipates, based on the assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well PAST THE TIME that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal.” The emphasis on the phrase PAST THE TIME is to highlight that the Fed will keep moving the threshold on what will constitute an acceptable level of employment, if not in words but in deeds.
Notes From Underground: Happy and Healthy New Year to All of Those Celebrating
September 16, 2012Last week we covered a great deal of ground on the economic front as the world’s central banks, from Beijing to Washington were busy generating versus types of stimulus programs. The Chinese government aided the cause by announcing an infrastructure program of $157 billion in an effort to generate even more stimulus to a slowing economy. As the Chinese authorities begin on a path of shifting the export model to a more domestic consumption type growth plan, there is a great deal of excess Chinese capital development that needs to be utilized and the slowdown in global economic growth mandates a shift in priorities for the POLITBURO.