Forex Today: RBNZ opts for a 50 bps cut, FOMC Minutes next
|Here is what you need to know on Wednesday, October 9:
The action in financial markets remain choppy midweek, with investors' search for the next catalyst continues. The US economic calendar will feature Wholesale Inventories data for August. Later in the day, the US Treasury will hold a 10-year note auction and the Federal Reserve (Fed) will publish the minutes of the September policy meeting.
US Dollar PRICE This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.08% | 0.22% | -0.10% | 0.73% | 0.92% | 1.17% | -0.22% | |
| EUR | -0.08% | 0.19% | -0.16% | 0.68% | 0.82% | 1.08% | -0.33% | |
| GBP | -0.22% | -0.19% | -0.39% | 0.50% | 0.63% | 0.92% | -0.40% | |
| JPY | 0.10% | 0.16% | 0.39% | 0.83% | 1.01% | 1.21% | -0.08% | |
| CAD | -0.73% | -0.68% | -0.50% | -0.83% | 0.22% | 0.43% | -0.94% | |
| AUD | -0.92% | -0.82% | -0.63% | -1.01% | -0.22% | 0.30% | -1.10% | |
| NZD | -1.17% | -1.08% | -0.92% | -1.21% | -0.43% | -0.30% | -1.33% | |
| CHF | 0.22% | 0.33% | 0.40% | 0.08% | 0.94% | 1.10% | 1.33% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The US Dollar (USD) Index, which tracks the USD's valuation against a basket of six major currencies, closed the second consecutive day virtually unchanged on Tuesday. The index edges slightly higher and stays above 102.50 in the European morning on Wednesday. The risk-averse market environment seems to be helping the USD hold its ground. At the time of press, US stock index futures were down between 0.2% and 0.4% on the day. Meanwhile, China's Shanghai Composite Index fell nearly 7% and Hong Kong's Hang Seng Index lost over 1% after Reuters reported that China’s Finance Ministry is set to roll out a 2 trillion Yuan fiscal stimulus package on October 12.
Following its October policy meeting, the Reserve Bank of New Zealand (RBNZ) decided to lower the policy rate by 50 basis points (bps) to 4.75% from 5.25%. In its policy statement, "the New Zealand economy is now in a position of excess capacity, encouraging price- and wage-setting to adjust to a low-inflation economy," the RBNZ noted. NZD/USD came under heavy bearish pressure in the Asian trading hours and was last seen trading at its lowest level since Mid-August below 0.6100.
Following Tuesday's recovery attempt, EUR/USD stays on the back foot early Wednesday and retreats toward 1.0950.
GBP/USD registered small gains on Tuesday but failed to stabilize above 1.3100. The pair was last seen trading modestly lower on the day near 1.3080.
USD/JPY closed the day flat on Tuesday but started to stretch higher in the Asian session on Wednesday. As of writing, the pair was up 0.3% on the day at 148.60.
Following a bearish start to the week, Gold extended its slide and touched its lowest level in over two weeks near $2,600 on Tuesday. Although XAU/USD erased a small portion of its daily losses later in the American session, it failed to gather recovery momentum. In the European morning, Gold trades in the red at around $2,610.
RBNZ FAQs
The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.
Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.
In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.
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