RBNZ On Hold
The RBNZ kept the policy rate on hold at 2.5%, and pointed to the detrimental consequences of a strong NZD. Governor Bollard said a strong currency undermines GDP growth and, if the kiwi’s recent gains are sustained, the need for rate hikes would be reduced. Greek headlines are now focusing squarely on the participation rate in the upcoming restructuring. Bondholders have until 2000 GMT Thursday to declare where they stand. At one point on Wednesday the IIF put participation levels at 40.8%, but local Greek media said it was closer to 77%. Elsewhere the dollar fell across the board after the Wall Street Journal reported the Fed is still considering a variety of ways to implement another round of QE should it feel the need to ease further later this year. Three options are on the table: (1) the vanilla approach of bond buying as implemented in QE1 and QE2 or (2) an extension of Operation Twist or (3) a new form of ‘sterilised’ QE. We note the latter approach is not dissimilar to the ECB’s SMP program where money is printed to buy bonds and the cash thus injected is subsequently reabsorbed by the collection of short term deposits. Policy decisions from the BoE, ECB and Bank of Canada are due later on Thursday and − like the overwhelming majority of economists surveyed by Bloomberg − our economists expect ‘no change’ verdicts from all three central banks. Australian employment will also be a key focus in Asia. Overnight, EURUSD traded 1.3096-1.3164 and USDJPY traded 80.59-81.22.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank