Table of forecasts for New Zealand’s official cash rate
Following is a table of forecasts for New Zealand’s official cash rate at the four remaining reviews this year.
2007 July Sept. Oct. Dec. --------------------------------------------- Median 8.25% 8.25% 8.25% 8.25% --------------------------------------------- ANZ National 8.25% 8.25% 8.25% 8.25% ASB Bank 8.25% 8.25% 8.25% 8.25% Barclays 8.0% 8.0% 8.0% 8.0% BNZ 8.25% 8.25% 8.25% 8.25% Citigroup 8.25% 8.25% 8.25% 8.25% Deutsche 8.25% 8.25% 8.25% 8.25% First NZ 8.25% 8.25% 8.25% 8.25% Goldman Sachs 8.0% 8.0% 8.0% 8.0% HSBC 8.25% 8.25% 8.25% 8.25% ICAP 8.25% 8.25% 8.25% 8.25% JPMorgan 8.25% 8.25% 8.25% 8.25% Macquarie 8.25% 8.25% 8.25% 8.25% RBC 8.25% 8.25% 8.25% 8.25% TD 8.0% 8.0% 8.0% 8.0% UBS 8.0% 8.0% 8.0% 8.0% Westpac 8.25% 8.5% 8.5% 8.5% ==============================================
NFP: Trade the Momentum and not the Moment
Trading the moment of the NFP relaese is hit and miss, trading the momentum of the NFP is a better bet.
The volatility of the 1st Friday of each month that NFP is released is not just down to the number of jobs created, this is a complex release that has four components that Traders must be aware of:
1. The actual number of jobs reported as being created this month; July’s number is expected in at 125k, and is an average of analysts’ figures that range from 300k to 20k. The High to Low difference in opinion is enormous.
2. The revision to the previous month’s number; Probably as important as the new number, the revision can add 50k to the previous amount, and that is what creates the volatility as Traders re-align their previous thoughts on what happened four weeks ago.
3. The Employment Rate; Currently at 4.5% is one of the lowest in the world and has stayed between 4.5-4.6% recently. Any move outside this area would be dramatic
4. Average Hourly Earnings; Looking at coming in around 0.4%, this is the number that the Fed stated was causing it concern as an inflationary read.
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Nonfarm Employment Change
Measures the number of new jobs created in the previous month, excluding the farming industry. A rising trend has a positive effect on the nation’s currency. The number of new jobs being created is one of the most important indicators of the economy’s health because consumer spending, which is highly correlated with labor conditions, makes up a large portion of GDP. This report is the first of the month that relates to labor conditions, making it susceptible to big surprises.
Currencies Hit Multi Decade Highs After Strong Non-Farm Payrolls
Rising oil prices and strong US job growth sent carry trades to fresh highs today. With the labor market sparing the US economy from a major downturn, the market is hungry for risk and yield. Selling in the Japanese Yen has been so strong that the currency hit a new record low against the Euro, a 20 year low against the high yielding New Zealand dollar, a 16 year low against the Australian dollar and a 14 year low against the British pound. In other words, the Yen crosses hit decade if not multi decade highs. The move in oil prices has also pushed the Canadian dollar to a new 30 year high.
AUD Interest Rate Statement
Each month, excluding January, the Reserve Bank of Australia (RBA) Board meets to set the nation’s short term interest rate (i.e., “cash rate”). The Board announces the decided rate shortly after the meeting, and when there is a change in rates they also releases a statement that contains the economic conditions that effected their decision. A rising trend in interest rates has a positive effect on the nation’s currency. Short term rates are the paramount factor in currency valuation; traders look at most other indicators merely to predict how interest rates may change in the future. High interest rates attract foreigners looking for the best “risk-free” return on their money, which can dramatically increases demand for the nation’s currency. The decision on where to set interest rates depends mostly on inflation. The primary objective of the central bank is to achieve price stability; when inflation rises above an annualized rate of approximately 3%, they will respond by raising interest rates in an attempt to bring prices down.
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How Much More Can the GBP Rally ?
How Will The Markets React?
Interest rate announcements are always important for the foreign exchange market. With the Bank of England, this upcoming rate decision will be market moving regardless of whether they decide to raise interest rates or not. After having raised rates in May and then leaving them unchanged in June, the BoE is expected to lift rates from 5.50 to 5.75 percent tomorrow. Of the 60 economists surveyed by Bloomberg, 52 or 87 percent of them are calling for an interest rate hike. This almost unanimous view puts the “surprise” element of the event risk to the downside. Therefore if the Bank of England leaves rates unchanged or raises rates and then issues some very neutral language in their statement, we could see a far larger move in the GBP/USD than if they do exactly what the futures curve is pricing in, which is to raises rates and remain hawkish. According to futures traders, the BoE could bring rates up to 6 percent by the end of the year. The recent movements in the currency, bond and stock markets indicate that British pound and Gilt traders are expecting higher rates while stock traders are not.
GBP Interest Rate Statement
Each month the Bank of England (BOE) Monetary Policy Committee (MPC) votes on where to set the nation’s short term interest rate (i.e., “bank rate”). Shortly after each vote, the MPC releases a statement that contains the outcome of their vote, a brief commentary of the economic conditions that effected their decision, and most importantly, clues regarding the outcome of future votes. A rising trend in interest rates has a positive effect on the nation’s currency. Short term rates are the paramount factor in currency valuation; traders look at most other indicators merely to predict how interest rates may change in the future. High interest rates attract foreigners looking for the best “risk-free” return on their money, which can dramatically increases demand for the nation’s currency. The decision on where to set interest rates depends mostly on inflation. The primary objective of the central bank is to achieve price stability; when inflation rises above an annualized rate of approximately 2%, they will respond by raising interest rates in an attempt to bring prices down.
Leading Index m/m
Measures overall economic health by combining ten leading indicators including average weekly hours, new orders, consumer expectations, housing permits, stock prices, and interest rate spreads. The index is published monthly by The Conference Board, a leading private US research group, but traders tend to pay little attention because the components that make up the index are reported at an earlier date.
Oil Prices above $70 Oil
If crude continues to rise, it will not be long before the average price of gasoline in the US moves back above $3 a gallon. When this happens, companies around the world will begin to add fuel surcharges, which will also boost core inflation. Over the past few years, we have seen oil become the primary driver of hawkish monetary policy across the globe. The higher oil prices rise, the longer central banks will keep interest rates high, which in one word, boils down to CARRY.