The RBNZ Sinks the Kiwi Dollar, with Focus back to Brexit and the Pound

Earlier in the Day:

It was a quiet day on the economic data front, left central banks to drive the markets through the early part of the day.

First up was RBA Assistant Governor Kent, who delivered opening remarks at FX Week Australia. The main event of the Asian session, however, was the RBNZ interest rate decision and Rate Statement, which certainly had an impact.

For the Aussie Dollar,

A scheduled speech by RBA Assistance Governor Kent in the early hours had a muted impact on the Aussie Dollar. There was nothing related to monetary policy in the opening remarks to have an influence on market sentiment towards RBA monetary policy.

The Aussie Dollar moved from $0.71372 to $0.7381 during the opening remarks. At the time of writing, the Aussie Dollar was down 0.43% to $0.7104, a dovish RBNZ contributing to the slide.

For Kiwi Dollar,

The RBNZ held rates unchanged at 1.75% this morning, which was in line with market expectations. Following a hawkish February statement, the tone was somewhat different this morning, however. The RBNZ rate statement steered to the more dovish side and included the following salient points:

• Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of the next OCR move is down.
• Core consumer inflation remains below the 2% target, necessitating continued supportive monetary policy.
• The global economic outlook has continued to weaken, particularly with some of the key trading partners.
• As a result of central banks easing their expected monetary policy stances, upward pressure has been placed on the Kiwi Dollar.
• Domestic growth slowed in 2018.
• Low-interest rates and increased government spending and investment is expected to support growth over 2019.
• Low-interest rates and continued employment growth should support household spending and business investment.
• Risk of a more pronounced global downturn has increased and low business sentiment continues to weigh on domestic spending.
• The RBNZ will keep the OCR at an expansionary level for a considerable period.

The Kiwi Dollar slid from $0.69107 to $0.68062 upon release of the statement. At the time of writing, the Kiwi Dollar stood at $0.6798, down 1.53% for the session.

Elsewhere,

At the time of writing, the Japanese Yen was up by 0.08% to ¥110.55 against the U.S Dollar. Mixed sentiment through the early part of the day provided the Yen with support. A particularly dovish RBNZ will have contributed to a pullback in risk appetite in the early hours.

The Day Ahead:

For the EUR

It’s a quiet day on the economic calendar. With no material stats scheduled for release, ECB President Draghi could rain on the bulls’ parade. Central bank commentary has certainly shifted and, with the RBNZ joining the party, Draghi could deliver a EUR slide.

Outside of the numbers, risk sentiment through the day will influence, any risk aversion expected to pin back the EUR.

At the time of writing, the EUR was down 0.07% at $1.1258.

For the Pound

There are no material stats scheduled for release through the day. The focus will remain on Brexit as the markets look for a resolution to the Brexit standoff in Parliament.

It’s all about the alternatives later today and, when considering the need for cross-party support, this could go on for days. It’s been reported that MPs will be completing a number of ballots that address different versions of the Brexit deal.

Expect chaos during the Parliamentary session and with it, a choppy session for the Pound. Lack of direction and pandemonium could lead to support for Theresa May’s deal, but and there is always a but… Theresa May will likely have to resign in order to get the deal over the line.

Parliament could vote in favor of revoking Article 50 or even be in favor of a 2^nd referendum.

At the time of writing, the Pound was down by 0.23% to $1.3182.

Across the Pond

It’s a relatively quiet day ahead for the Greenback.  4^th quarter current account and January trade data are due out of this U.S this afternoon.

The timing of the trade data couldn’t be better as the U.S administration prepares to resume trade talks with China tomorrow. There’s certainly a greater incentive for China to find an agreement, now that the U.S President looks set to take on the Democrats in the 2020 election. There’s also an incentive for the U.S president to find common ground with China. A recession going into the 2020 campaign would almost certainly end any chance of re-election.

With the markets likely to be focused on tomorrow and Friday’s trade talks, expect some chatter from the Oval Office.

At the time of writing, the Dollar Spot Index was up 0.10% to 96.833.

For the Loonie

January trade data due out later today will provide the Loonie with some direction. While forecasts are Loonie positive, however, risk sentiment will likely have a greater influence through the day.

The Loonie was down 0.10% at C$1.3395, against the U.S Dollar, at the time of writing. A pickup in crude oil prices failed to provide support early on, with risk sentiment through the Asian session driving demand for the Greenback.