As we fret on whether the Fed will raise rates and wonder about the Bank of England, it’s nice to see some central banks are still managing to cut rates. Overnight, it was the Reserve Bank of New Zealand, where rates were cut by a largely anticipated 25bp to 2.75%. The kiwi dropped sharply as a result, from 0.64 to 0.6275 now. This continues the easing cycle started in June of this year, as the central bank has tried to boost the economy, troubled by lower commodity prices and weaker demand. The central bank governor was also leaving the door open for further easing, hence the fall in the currency. Rates are still some way above the prevailing rates in Australia (at 2.0%), so at least from a relative perspective, the scope for further easing remains fairly compelling, especially given the wider global situation.
Also overnight, the latest data from China has shown headline inflation rising more than expected, up to 2.0% (from 1.6%), although PPI (more the price of goods) fell to -5.9% YoY. The latter still suggests that there is more trouble ahead of China and downward pressure on the headline inflation rate. Meanwhile, the Aussie received some support from better than expected labour market data. The headline unemployment rate was steady at 6.2%, but the employment measure showed better than expected growth in jobs, which pulled the Aussie back about the 0.70 level. A sustained push above this level looks difficult at this time though. The Bank of England decides on rates today, with the minutes and votes published at the same time (a new development as of last month). This gives scope for greater sterling volatility, with main focus being on whether the one vote for higher rates seen last month is removed on the back of the recent concerns regarding China and the global economy.