The USD is the strongest and the NZD is the weakest as the NA session begins.

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The strongest to the weakest of the major currencies

As the NA session begins, the USD is the strongest and the NZD is the weakest.

Overnight the RBNZ kept rates unchanged (some were looking for a hike). The NZDUSD fell sharply on the news. The RBNZ also lowered expectations for OCR rate which suggests that expectations of rate hikes, are offsides (at least for now).

  • The Reserve Bank of New Zealand (RBNZ) has adjusted its forecasts for the official cash rate (OCR), expecting it to be at 5.59% in June 2024, down from a previous forecast of 5.67%, and to decrease further to 5.47% by March 2025 (previously 5.56%).
  • The RBNZ also adjusted its expectation for the trade-weighted index (TWI) of the New Zealand dollar to 71.5% by March 2025, up from 70.7%,
  • Anticipates annual CPI inflation to be 2.6% by March 2025, slightly higher than the previously expected 2.4%. The OCR is forecasted to decrease to 5.33% by June 2025 and further to 3.16% by March 2027.

The RBNZ stated that the OCR needs to remain at a restrictive level for an extended period to manage demand and noted that the New Zealand economy has been developing as expected. Confidence was expressed that the current OCR level is effectively restricting demand. While core inflation and inflation expectations have shown signs of decline, making the risks to the inflation outlook more balanced, headline inflation continues to exceed the target band of 1 to 3 percent. This situation limits the RBNZ’s capacity to handle unexpected inflationary pressures. The statement highlighted the necessity for a sustained decrease in capacity pressures within the economy to ensure that headline inflation reverts to the target range. It was also noted that the easing of capacity constraints in the labor market, due to high immigration and diminishing demand growth, has started to alleviate inflationary pressures.

Later, RBNZ Orr reiterated the view that rates are sufficiently restrictive. He ndicated that central banks, including the RBNZ, may need to maintain interest rates at higher levels than what the markets are currently anticipating. He remarked that the New Zealand economy has progressed largely in line with expectations. Although there was a discussion about a potential rate hike, there was a strong consensus that the current rates were adequate. Orr noted that domestic price pressures are beginning to ease as anticipated, and it was reassuring to see a decline in inflation expectations. Recent data has provided the RBNZ with more confidence in the economic outlook than they had in November, suggesting that New Zealand is entering a period of disinflation. Orr also mentioned that the economy is likely to experience a soft landing, indicating a gradual easing of economic activity without entering a recession.

Technically, the NZDUSD fell below the 100/200 bar MAs on the 4-hour chart, and worked to the 100 day MA at 0.60917. The market is finding some support at that key technical level.

NZDUSD falls to the 100 day MA and finding some stall

Meanwhile, in the EU the ECB policymaker Peter Kažimír has expressed satisfaction with the recent adjustment in market expectations regarding interest rate cuts, deeming them now “more realistic.” He highlighted that headline disinflation is occurring faster than anticipated, although there remains uncertainty around core prices. Kažimír prefers a rate cut in June, followed by a “smooth and steady cycle of policy easing.” Currently, market odds suggest approximately a 37% chance for a rate cut in April, with a rate cut in June fully anticipated. For the entire year, the market has priced in a total of 91 basis points in rate cuts. Earlier today, ECB’s Vice President Luis de Guindos expressed optimism regarding the recent inflation trends, noting that the outlook has been very positive with expectations that prices will continue to decline towards the ECB’s target of 2%. De Guindos highlighted that should upcoming data confirm the current assessment, the ECB’s Governing Council (GC) is prepared to adjust its monetary policy accordingly to ensure price stability and continue steering inflation towards the set target.

A snapshot of the markets as the North American session begins currently shows:

  • Crude oil is trading down down $0.72 or -0.93% at $78.15. Yesterday at this time, the price was at $77.45
  • Gold is trading unchanged at $20,030. Yesterday this time, the process trading at $2037.80
  • Silver is trading down $0.10 or -0.46% at $22.33. Yesterday at this time, the price is trading at $22.65
  • Bitcoin continues its run to the upside and currently trades at $59,428. Yesterday this time, the price was trading at $57,199. Since February 23 low of $50,519, the price has risen 17.63%.

In the premarket, the US stocks the major indices are trading lower:

  • Dow Industrial Average futures are implying a decline of -133 points. Yesterday the index fell -96.82 points or -0.25% at 38972.42
  • S&P futures are implying a decline of 18.13 points. Yesterday the index rose 8.63 points or 0.17% at 5078.17
  • Nasdaq futures are implying a decline of -80.8 points. Yesterday the index rose 59.05 points or 0.37% at 16035.30

In the European equity markets, the major indices are trading mixed:

  • German DAX, +0.10%
  • France CAC -0.15%
  • UK FTSE 100, -0.74%
  • Spain’s Ibex, -0.80%
  • Italy’s FTSE MIB, -0.29% (delayed by 10 minutes).

Shares in the Asian Pacific markets moved lower overnight:

  • Japan’s Nikkei 225, -0.08%
  • China’s Shanghai composite index, -1.91%
  • Hong Kong’s Hang Seng index, -1.51%
  • Australia S&P/ASX, -0.03%

Looking at the US debt market, yields are moving lower. Yesterday, yields rose modestly:

  • 2-year yield 4.685%, -2.7 basis points.. At this time yesterday, the yield was at 4.62%
  • 5-year yield 4.297%, -2.5 basis points. At this time yesterday, the yield is at 4.281%
  • 10-year yield 4.287%, -2.8 basis points. At this time yesterday, the yield was trading at 4.267%
  • 30-year yield 4 44418%, -2.2 basis points. At this time yesterday, the yield was at 4.350%
  • The 2-10 year spread is at -39.9 basis points. At this time yesterday, the spread was at -41.3 basis points
  • The 2-30 year spread is at -26.8 basis points. At this time yesterday, the spread was at -29.4 basis points.

European benchmark 10-year yields are higher:

European benchmark 10 year yields

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