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NZD to remain under pressure
Janet Yellen took weight off of the RBNZ’s back by increasing the federal fund rate last Wednesday. Indeed, the move will prevent Governor Wheeler to lower the official cash rate further. As a reminder, the OCR was trimmed four times over the past eight months (from 3.50% to 2.50% on December 10th) in an attempt to boost exports and to bring inflation back within the 1%-3% target range. Looking at the latest projections, the RBNZ pushed back the timeframe for reaching the inflation target by roughly one year compared to the previous forecast on falling crude oil prices. In its MPS from December, the RBNZ expects headline CPI to reach the bottom of the target range in early 2016 and to move toward the mid-point at the very end of 2017.
In spite of this drawback, the RBNZ is more optimistic on growth as it revised higher its forecast. Despite a fall in dairy prices and, to some extent, a decline of prices foe forestry and meat products, the central bank increases its GDP forecast for 2016 from 2.1% to 2.2% and from 2.5% to 2.9% for 2017, compared to September’s estimates, as the central bank expect a pick-up in export prices and strong population growth. Overall, we expect commodity currencies to remain under pressure in the foreseeable future as the slowdown of the Chinese economy will continue to weigh on global demand, and therefore prices. In the wake of the Fed historic decision, the Kiwi fell roughly 1.50%, down to $0.67. We expect the NZD to remain exposed to selling pressure due to the country’s high dependency on external demand. A strong resistance can be found at 0.6897 (high from October 15th). On the downside, the low from November 18th at 0.6430 will act as support.
BoJ adjusts its monetary program
The Bank of Japan has kept its monetary base unchanged for 2016, which will remain at the annual pace of 80 trillion yen. Nevertheless, the average maturity of its Japan government bond holdings will be increased to 7-12 years from 7-10 years and the central bank has surprised financial markets by announcing Exchange Traded Funds purchases will be increased. Under this new program, the BoJ will increase its ETFs purchases by yen 300 billion which account for the time being for around 3 trillion yen.
Kuroda tried to instil confidence in the Japanese economy after recent data (business confidence, capital spending) surpassed expectations. We believe that the BoJ, despite this attitude, is only trying to find more ways to stimulate the economy as the current program is clearly not sufficient. The era of free money will continue and except for recent positive data such as improved business confidence, we have the impression that the BoJ is entering an all-in stage. The truth is that “Abenomics” is failing and confidence in the economy should not be mixed up with the results that this economy is providing. We remain bearish on the Japanese currency and target the yen 125 against the greenback over the medium-term.
Regards All
Janet Yellen took weight off of the RBNZ’s back by increasing the federal fund rate last Wednesday. Indeed, the move will prevent Governor Wheeler to lower the official cash rate further. As a reminder, the OCR was trimmed four times over the past eight months (from 3.50% to 2.50% on December 10th) in an attempt to boost exports and to bring inflation back within the 1%-3% target range. Looking at the latest projections, the RBNZ pushed back the timeframe for reaching the inflation target by roughly one year compared to the previous forecast on falling crude oil prices. In its MPS from December, the RBNZ expects headline CPI to reach the bottom of the target range in early 2016 and to move toward the mid-point at the very end of 2017.
In spite of this drawback, the RBNZ is more optimistic on growth as it revised higher its forecast. Despite a fall in dairy prices and, to some extent, a decline of prices foe forestry and meat products, the central bank increases its GDP forecast for 2016 from 2.1% to 2.2% and from 2.5% to 2.9% for 2017, compared to September’s estimates, as the central bank expect a pick-up in export prices and strong population growth. Overall, we expect commodity currencies to remain under pressure in the foreseeable future as the slowdown of the Chinese economy will continue to weigh on global demand, and therefore prices. In the wake of the Fed historic decision, the Kiwi fell roughly 1.50%, down to $0.67. We expect the NZD to remain exposed to selling pressure due to the country’s high dependency on external demand. A strong resistance can be found at 0.6897 (high from October 15th). On the downside, the low from November 18th at 0.6430 will act as support.
BoJ adjusts its monetary program
The Bank of Japan has kept its monetary base unchanged for 2016, which will remain at the annual pace of 80 trillion yen. Nevertheless, the average maturity of its Japan government bond holdings will be increased to 7-12 years from 7-10 years and the central bank has surprised financial markets by announcing Exchange Traded Funds purchases will be increased. Under this new program, the BoJ will increase its ETFs purchases by yen 300 billion which account for the time being for around 3 trillion yen.
Kuroda tried to instil confidence in the Japanese economy after recent data (business confidence, capital spending) surpassed expectations. We believe that the BoJ, despite this attitude, is only trying to find more ways to stimulate the economy as the current program is clearly not sufficient. The era of free money will continue and except for recent positive data such as improved business confidence, we have the impression that the BoJ is entering an all-in stage. The truth is that “Abenomics” is failing and confidence in the economy should not be mixed up with the results that this economy is providing. We remain bearish on the Japanese currency and target the yen 125 against the greenback over the medium-term.
Regards All