Investors Await UK Q3 GDP Figure, NZD Gains On RBNZ Announcement

Published: Thursday, 25 October 2012 09:00 BST - Written by John Cameron

STORY LINK Investors Await UK Q3 GDP Figure, NZD Gains On RBNZ Announcement

The Federal Reserve’s FOMC announcement last night delivered a ‘no change’ result, meaning that the world’s leading central bank will continue its extraordinary monetary policy measures into next year. The Fed also confirmed that it expected US interest rates to remain ultra-low until at least the middle part of 2015. It appears that the contraction of global credit markets which was instigated by 2007’s sub-prime mortgage fiasco is increasingly resembling Japan’s banking crisis of the mid-1990s, which saw dozens of the nations small localised banks collapse, causing credit flows to businesses and individuals to dry up. Japanese policymakers’ response was to slash domestic interest rates to close to zero – a level at which they have remained for the intervening 15+ years.

Elsewhere, the Reserve Bank of New Zealand’s overnight policy meeting also yielded a ‘no change’ decision with interest rates remaining at 2.50%, as per analysts’ expectations. However, the ‘Kiwi’ has been the strongest-performing currency since Europe’s market close yesterday afternoon thanks to new RBNZ Governor Graeme Wheeler’s accompanying comments which stated that his Bank would ‘continue to monitor inflation indicators’ during coming months for signs that domestic price rises are on the increase. New Zealand’s headline rate of interest has remained unaltered since the start of last year. Given Wheeler’s comments of last night, it appears highly possible that the Antipodean nation has now ended its rate cutting cycle and that the RBNZ’s next move will be a rate hike. The GBP NZD exchange rate dipped to 1.9482 during the Asian session, but there could be further downside to come for the pair in the near term.

Looking ahead to today’s session, the key data release comes in the form of initial Q3 GDP data for the UK economy. British Prime Minister David Cameron dropped heavy hints yesterday that the figure will be positive, but with analysts anticipating a quarterly increase in UK economic activity of 0.6%, expectations are high. Any print of above 0% would mean that Britain had moved out of recession. However, any reading below 0.5% would be likely to see the Pound come under broad selling pressure.

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