New Zealand Slashes Rates

Daily Analysis - 10/12/2015

Reserve Bank of New Zealand Opts to Ease Policy Further in Response to Economic Conditions


The RBNZ announced late Wednesday that the Central Banks decided to cut the key interest rate by a further 25 basis points to 2.50% from 2.75%. This is the fourth time the RBNZ bank has accommodated policy in 2015 as officials fear a weak outlook for the economy and inflation at a time when global conditions are crumbling.

RBNZ Cuts Further

The Reserve Bank of New Zealand cut its official cash interest rate by an additional 25 basis points to 2.50% amid low global growth and inflation conditions. The RBNZ has moved to ease policy multiple times since June with the latest cut occurring October 28th in response to weak dairy prices and soft domestic inflation. RBNZ Governor Graeme Wheeler has indicated that further reduction in the cash rate would probably be necessary to counteract falling commodity prices, global uncertainty and to help bring inflation back towards the longer-term objective. He also remarked that global dairy prices had recovered recently along with other areas of the economy such as the services sector and construction which remain robust. However concerns still remain regarding the weak growth occurring in China and how it will impact the global economy. The New Zealand dollar surged on the announcement, with NZDUSD rising as high as 0.6781 before pulling back.


Germany’s Trade Surplus

Germany, Europe’s biggest economy, saw the trade balance rise to €20.80 billion in October, exceeding last month’s €19.20 billion value in a sign that the export machine is beginning to recover aided by highly accommodative monetary conditions. However, taking a deeper dive into the data, the surplus resembles that of China in that the gains were mainly attributed to the import contraction being larger than the export contraction, with each figure declining -3.40% and -1.20% respectively over the prior month. The slowdown occurring in China has been the main contributor to the decline in Germany’s exports while stronger demand from the EU kept exports buoyed. The weaker Euro has mainly helped to spur demand from the US and the UK, helping offset losses from other markets. After several sessions of strengthening, the Euro is starting to experience a momentum correction lower versus peers.


EIA Reports Crude Stocks

The US EIA recorded a huge drawdown in crude oil inventories on Wednesday, reporting the first stockpile decline in 11-weeks. Despite last week’s gains of 1.177 million barrels, the week ended December 4th experienced a drop of -3.568 million barrels. Data released missed both analyst expectations and previous inventories of 252,000 barrels and 1.177 million barrels respectively. The decline is said to reflect the drop of imports into the US Gulf Coast, as vessels are sitting offshore waiting to unload. Total oil inventories rose as high as 485.90 million barrels last week in a growing sign that storage capacity is rapidly approaching its limits. The gains in prices were temporary though as statistics showed that distillate stockpiles of heating oil and diesel rose well above expectations to 5.000 million barrels. The huge stock of distillate oil is attributed to warmer winter conditions, contributing to the reversal back downwards in prices.


Australia’s employment surges

Employment in Australia climbed once more in November, reaching higher values in comparison to October’s report. Job creation in Australia reached 71,400 in the latest period, surpassing last month’s 56,100 and beating an estimated decline of -10,000 jobs. This figure marked the strong employment gains in over 15 years, pushing the unemployment rate to a 19-month low. The country’s official unemployment rate dropped to 5.80% in November as employment surged, beating economists’ expectations of 6.00% and prior month’s value of 5.90%. While the mining sector in particular has seen substantial reduction in employment after the closure of mines and capital investment projects, at its peak, the sector only accounted for approximately 2.00% of all jobs in the economy. The resilience of employment reflects a major rationale behind the RBA resisting pressure to accommodate monetary policy further from the prevailing 2.00% cash rate.


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