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RBNZ rate decision in the spotlight

By Margaret Yang, CMC Markets

Reserve Bank of New Zealand rate decision in focus

More volatility in the FX market is probably ahead as the Bank of New Zealand will announce its interest rate decision tomorrow at 5am Singapore time. The market seems to have no doubts about a possible rate cut. The only question is will they cut by 25 bps or 50 bps?  According to the Bloomberg world interest rate forecast, the implied probability of a 25bps rate cut by the RBNZ stands at 79% whereas the probability of 50bps cut is 21% this morning.

The Kiwi dollar is resilient ahead of the central bank’s rate decision, extending its three-day gains against USD. The current price of 1.3900 for USD/NZD is only 1.7%, or about 240 bps above its year-to-date low of 1.3650.

Nasdaq reaches historical high

The Nasdaq Index climbed to a record new high last night, albeit by small moves. The high valuation and high index level we see today is backed by ample liquidity and strong 2Q corporate earnings.  Concerns of a rate hike have also alleviated as strong US non-farm payrolls numbers led market to believe that the US economy is strong enough to withstand another rate hike this year.

But the outlook is clouded by the upcoming US election and the possibility of heightened political and financial risks from overseas markets, especially China and Europe.

Crude oil ends a four-day rally

Crude oil prices dropped last night as US government forecasters raised their outlook for domestic production, bringing more concerns about a global glut of crude oil. On the other hand, expectations of production freeze talks by OPEC members have diminished, thus putting more pressure on oil’s recent rally.

Traders will be watching tonight’s DoE crude inventory, which is forecasted to decrease by 1.75 million barrels from a week ago.

USD/NZD

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Margaret Yang Yan, CFA, is a market analyst for CMC Markets Singapore.