Earlier in the Day:
It’s was a relatively quiet start to the day on the economic calendar this morning. The Aussie Dollar and the Kiwi Dollar were in action in the early part of the day.
For the Aussie Dollar
The Westpac Consumer Sentiment Index rose by 2.5% to 107.7 in November, falling short of a forecasted 3.8% rise. In October, the Index had jumped by 11.9% to 105.0.
The Aussie Dollar moved from $0.72854 to $0.72822 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.03% to $0.7286.
For the Kiwi Dollar
The RBNZ delivered its November monetary policy decision this morning.
In line with market expectations, the RBNZ held the Official Cash Rate unchanged at 0.25%. While the RBNZ left the cash rate unchanged, the Committee did deliver more monetary policy stimulus.
In summary,
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A Funding for Lending Programme (“FLP”) will commence in December. This will reduce banks’ funding costs and lower interest rates.
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Large Scale Asset Purchase Programme (“LSAP”) of up to NZ$100bn.
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Official Cash Rate (“OCR”) unchanged at 0.25%, while ready to drop the OCR into negative territory.
Salient points from the Rate Statement included:
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Global economic activity has improved following the severe contraction, though there are geo-divergences.
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Some economies, including China, have seen surprising resilience.
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The impact of the global economic weakness on New Zealand had been more muted than anticipated.
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Commodity and asset prices have remained firm.
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Members remain concerned about the downside risks stemming from the 2nd wave of the pandemic
Domestically
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The pandemic was having significant implications for the Committee in meeting its remit.
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Both headline and underlying inflation were below 2%, with inflation expectations subdued.
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Employment was assessed to be below its maximum sustainable level.
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Closed international borders meant service export industries, such as tourism, would operate below capacity for an extended period.
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Members agreed that there was substantial uncertainty around how the economy would adjust.
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It was therefore appropriate for fiscal policy to play the primary role in supporting the economy.
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Without further policy easing, members projected that the labor market would weaken further near-term before recovering over subsequent years.
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Inflation was projected to fluctuate around the bottom of the Committee’s 1-3% target range until late in the projection period.
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Economic outcomes could be stronger than assumed if household or business spending accelerated.