APAC Morning Update - 25/01/21

The NZDUSD opens at 0.7190 whilst the AUDUSD opens at 0.7723

A bit of excitement on Friday out of New Zealand, (yes, really) was NZ’s CPI figures coming in at an annualized 1.8%. As we know the RBNZs mandate is to keep inflation between 1% and 3% - doing pretty well so far. Which begs the question, why would they bother going negative at their next meeting on the 24th Feb? Supposedly the answer is they wouldn’t, and this is more and more what the market is coming round to. If you remember the RBNZ basically flagged they were going to go negative, but were giving the banks a year to get all their systems in place to be able to handle it. That year is now up, so the RBNZ has the green light if they want to. Hard to see why they would, with the benefits of negative rates still well up for debate, but Adrian Orr has been known to surprise markets before. So at the next meeting we could conceivably stay pat at 0.25%, or even cut into negative territory at -0.25%. Orr has made 0.5% cuts before, and he likes to move early and aggressively. Moral of the story is next months decision is going to be a cracker, and the speculation in the build up
to it will be enough to move the Kiwi round.

Without banging on about inflation too much, how crazy is the above scenario? We have inflation bang in the middle of the band, and we are speculating if the bank will either cut once, twice, or at the very least hold. Why shouldn’t they raise rates? Don’t get this wrong, they are not going to, but that is kind of the point. How high would inflation need to be before they started to think it? 3%? 4%? And if they start to think it, how panicked is the market going to get? We are in a world of long term low interest rates, that no one can afford to go higher. Hence it seems that the inevitable hike when it finally comes will be too late, and the inflation train will have picked up too much momentum to stop. The only way to slow it would be to hike more aggressively, which the economy couldn’t stand. How will this all end? Beyond not well, we don't know the answer, but then again, don’t think anyone else does either.

 
Global equity markets are off across the board: Dow -0.6%, S&P 500 -0.3%, FTSE -0.3%, DAX -0.2%, CAC -0.6%, Nikkei -0.4%, Shanghai -0.4%.

Gold prices are off 0.7%, currently trading at $1,855 an ounce. WTI Crude Oil prices are also down 2.0% trading at $52.1 a barrel. 

AUDUSD 0.7723 -0.5%
AUDEUR 0.6341 -0.6%
AUDGBP 0.5645 -0.1%
AUDJPY 80.17 -0.2%
AUDNZD 1.0753 -0.3%
GBPAUD 1.7713 0.1%

NZDUSD 0.7190 -0.1%
NZDEUR 0.5907 -0.2%
NZDGBP 0.5251 0.1%
NZDJPY 74.51 -0.1%
NZDAUD 0.9305 0.2%
NZDCAD 0.9149 0.6%
GBPNZD 1.9030 -0.2%