Talking Points:
- NZ Dollar finds support in pre-positioning for RBNZ policy announcement
- British Pound falls as BOE’s McCafferty says further easing likely needed
- Aussie Dollar down as NAB forecasts RBA to mull non-standard stimulus
The New Zealand Dollar edged higher overnight in what may reflect pre-positioning ahead of the upcoming RBNZ rate decision.Priced-in expectations show investors are certain that a 25bps cut is in the cards, with at least 25bps in further easing over the coming 12 months.
This means a dovish posture is probably well-reflected in the exchange rate already, hinting that NZD volatility risk is skewed to the upside in the event that the central bank seems less inclined to ease in the coming months than the markets are projecting. With that in mind, today’s gains may mark protective rebalancing of exposure after Kiwi hit a two-week low yesterday.
Meanwhile, the British Pound fell after the BOE’s Ian McCafferty said that “more easing is likely to be required†following last week’s rate cut and QE top-up if the economy continues to develop in line with initial survey signals. He cautioned that the rate-setting MPC committee “faces a set of economic circumstances that make assessing the appropriate amount of policy stimulus more difficult†however.
The Australian Dollar was also pressured after NAB said its measure of business confidence fell further in July and projected that the RBA will lower the baseline lending rate by a further 50 basis points to a record-low 1 percent next year. The bank also warned that policymakers may then consider resorting to non-conventional stimulus measures if the economic outlook continues to deteriorate.
Looking ahead, a relatively muted economic data docket in European and US trading hours may allow established momentum to carry forward relatively unmolested. The lull in high-profile news-flow could make for especially pronounced sensitivity to headline risk however, warning that the threat of knee-jerk volatility may be elevated in the near term.
