RBNZ Unchanged
RBNZ Governor Bollard kept the policy rate unchanged at 2.5%, but again referred to the strong New Zealand dollar which he said “undermined export earnings”. He blamed quantitative easing overseas as one reason for the currency’s strength, along with relative economic performance. Not surprisingly, he observed that Chinese economic growth has slowed but said that the Chinese growth outlook is more important for Australia than it is for New Zealand. Elsewhere, the euro appears to have run out of steam after reaching 1.2937 against the dollar in the wake of the German Constitutional Court ruling which found that the ESM bailout facility complies with German law. There were a handful of minor stipulations such as Germany’s liability must not exceed EUR190 bn without further parliamentary approval but, significantly, there was no mention of constitutional constraints on further integration. It is probably the most marketfriendly outcome investors could have hoped for, and we note that another tail-risk event has been removed from the euro’s path. Today, the SNB is due to announce its quarterly policy decision, but we anticipate no change to the level of the floor in EURCHF at 1.20, and no change either to the SNB’s determination to defend it. But there is no question that investor attention will be squarely focused on tonight’s FOMC decision, forecast revisions, and subsequent press conference. Our US economists expect a new six-month program of asset purchases will be unveiled, totaling at least $500 billion and primarily focused on Treasury securities. Although consensus opinion amongst FX investors seems to be moving in this direction, such an outcome still has the potential to pile further downward pressure on USDJPY in our view – at least in the immediate aftermath of the announcement. As such we remain on BoJ intervention alert, with a particular focus on Friday morning Tokyo time.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank