The Reserve Bank of New Zealand today dropped its base rate by 25 basis points to 3.00% In an announcement it was indicated that there is the likelihood of further reductions in the rate. It is expected that the central bank will continue this easing of monetary policy further in order to stimulate inflation and support the economy on the back of a sharp fall in the price of dairy products (the main export product of New Zealand).
According to the governor of the RBNZ, G. Wheeler, although the country’s GDP growth is currently around 2.5% with low rates, activity in the construction sector and high immigration, the perspective for economic growth has weakened in comparison with June forecasts from the central bank. The governor also noted that the New Zealand dollar is significantly down since April and this is helping ease the parameters of their monetary policy. Nevertheless, he ruled out what others have called the unjustifiable and unsustainable position of the NZD, but added that a further drop in the currency’s price is necessary, taking into account the weak prices of commodities.
The New Zealander rose, despite the drop in rates. The tendency of the RBNZ to ease their policy further will limit the growth of the NZD. The currency has dropped to a six-year minimum this month. The NZD/USD is trading up at 0.6680.
According to a representative from the State Administration of Foreign Exchange (SAFE), Wang Chunying, there was no large or sustained outflow of capital from China in the first half of 2015. At the same time, the outflow of capital from the country was certainly linked to the strengthening of the dollar. Chunying also announced that China will withstand the pressure which will come from the expected interest rise in rates in the USA and, as a result, lead to the further strengthening of the dollar. A fall in Chinese currency reserves in Q2 was down to the weakening of the euro.
Today it was published that Japan’s external trade figures are quite weak. Exports rose by 9.5% YOY in June, but there was the expectation of a 10% rise. Imports fell less than expected: by 2.9% YOY. The country has a balance of trade deficit of 69 billion yen, but this was expected to have fallen to 45.8 billion yen. Such weak data for external trade has provoked pessimistic forecasts for GDP values for the second half of this year.
The euro is up on the back of the Greek parliament passing laws in respect to the reforms demanded by its creditors. Even though this doesn’t quite solve or counter a prospective Grexit next year, the euro headed north to 1.0991.
According to other statistics, June retail sales in the UK fell by 0.2% MOM (expected 0.4% growth). YOY these figures showed a growth of 4% and this makes it the 27th month in a row that this figure is up.
Business activity in the UK service sector is key for the country’s economy since any increase in the impulse for growth in the manufacturing industry and construction is difficult. The UK service sector makes up around 80% of the country’s GDP and its importance for the economy grew even further during the country’s route back to economic recovery. Over the medium term, retail sales are nevertheless looking reassuring, since a rise in wages should lead to a growth in consumer consumption and, therefore, expenditure.
The pound/dollar fell to 1.5586 from around 1.5650. The euro/pound was up by 0.5% to a weekly maximum of 0.7055.
Today it’s worth looking at retail figures from Canada and the US, as well as the numbers for initial applications for unemployment benefit in the US. Also, be sure not to give the consumer confidence indicator in the Eurozone a miss.
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Forecasts which are made in the review constitute the personal view of the author. Commentaries made do not constitute trade recommendations or guidance for working on financial markets. Alpari bears no responsibility whatsoever for any possible losses (or other forms of damage), whether direct or indirect, which may occur in case of using material published in the review.
Director of Alpari's analytical department
## ojimadu position
Senior Alpari analyst
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