- Reserve Bank of New Zealand cut its official cash rate by 25bps to 2.50% and left the door open for further monetary easing although we have the feeling that the RBNZ will not willing to act aggressively in the foreseeable future
- EUR/CHF may strenghten to 1.0940
- Despite the ECB rate cut on the deposit facility rate to -0.3% from -0.2%, there was no urge for the SNB to react as markets over-priced Draghi’s delivery and as a result the pressures on the EURCHF were limited and left some room for the SNB to react
- Still we believe that the CHF will face increasing pressures as the economic and political European uncertainties are set to grow and expecting surprises from the SNB within the next few months. In our opinion the EURCHF won’t be allowed to set up below 1.0500.
As expected, the Reserve Bank of New Zealand cut its official cash rate by 25bps to 2.50% and left the door open for further monetary easing. Despite the central bank’s stated dissatisfaction with the recent appreciation of the Kiwi, we have the feeling that the RBNZ will be reluctant to act aggressively for the foreseeable future. The bank expects inflation to move within the 1 to 3 percent target range in early 2016 as the effects of low crude oil prices fade away. After dropping to 0.6582 on the headlines, NZD/USD bounced to 0.6782 and finally stabilised around 0.6740, as market participants were expecting a more dovish statement. The New Zealand dollar will be sensitive to any sign of weakness in the economy as this would ensure another easing move from Governor Wheeler.
***Yann Quelenn, Market Analyst: "Following in the footsteps of last week’s ECB meeting when Mario Draghi disappointed financial markets, the Swiss National Bank has announced this morning that its rates will remain on hold.
The SNB’s sight deposit rate holds at -0.75% and the Libor target is still be ranging from -1.25% to -0.25%. Indeed, despite the ECB rate cut on the deposit facility rate to -0.3% from -0.2%, there was no desire for the SNB to react as markets in fact over-priced Draghi’s delivery and finally ended up disappointed. As a result, pressures on the EURCHF were limited and left some room for the SNB to react. However, the inflation forecast has been set higher for 2016 at -0.5% and lower for 2017 at 0.3% instead of 0.4%. The GDP forecast has also been revised down in the short-term at 1% this year and 1.5% next year.
Yet, we believe that the CHF will face increasing pressures as economic and also political uncertainties in Europe grow. Europe should not expect better results from their QE program, knowing that neither Japan nor the U.S experienced positive results quickly. Moreover, Europe is a set of fragmented countries each with its own set of governmental and fiscal rules, meaning that there will be more than one occasion when the ECB monetary policy will be questioned. The main risk for the SNB is a renewed strengthening of the Swiss Franc as Swiss industry is mostly oriented towards Europe. The SNB has two tools to defend the Swiss Franc, the sight deposit rate as well as the intervention on the FX market. Officially, according to the sight deposits of domestic banks, the SNB is not intervening in the market despite some rumors stating the opposite. Over the past five years the SNB has shown a propensity towards aggressive action. However, even a further rate cut may not be sufficient and so we are expecting some surprises from the SNB within the next few months. In our opinion the EURCHF will not be allowed to set up below 1.0500."***
In Australia, the unemployment rate surprised substantially to the downside in November, printing at 5.8% versus 6% expected (5.9% in the previous month) as the economy generated 71,400 jobs (economists expected a contraction of 10,000 jobs). The participation rate rose to 65.3% from 65% in October. AUD/USD jumped 1.55% on the news before stabilising slightly below $0.73.
In the equity market, Asian stocks are trading in negative territory, following London and Wall Street's lead. The Nikkei and the Topix index were down 1.32% and 0.98% respectively, while in Hong Kong the hang Seng fell 0.40%. In mainland China, the Shanghai Composite also paired losses, down 0.49%, while the tech-heavy Shenzhen Composite slid 0.11%. Only, South Korean and Indian shares managed to trade in positive ground with the Kospi index and the Sensex up 0.20% and 0.40% respectively. As expected the BoK left its repo rates unchanged at 1.50%.
Today traders will be watching current account balance and GDP figures from Turkey; inflation report from Denmark, Sweden and Norway; interest rate decision from the SNB; BoE interest rate decision; new housing price index from Canada; import price index, monthly budget statement and initial jobless claims from the US; manufacturing PMI and food prices from New Zealand.