US Fed back to thinking about easing
The deadlock is still not broken. The NZD/AUD at 79.8c is near midway of the 75.5 – 83.7 range of the last 18 months. The NZD/USD at 73.3c is above the midpoint of the last 12 months but remains within the 65.5 – 76.3 12-month range. Providing some upward pressure on the NZD/USD is the gradual recovery of the EUR/USD, and the coincident recovery of the US share market, more so due to the likelihood of prolonged low US interest rates rather than any harbingers of global growth. Therein lies the problem: the global outlook remains fragile; or, as the Bank of Canada put it, “the global economic recovery is proceeding but is not yet self-sustaining”. This is probably not enough to force another US easing this week but that is the direction of risk. Meanwhile the RBA is very much on hold, having attained average interest rates to borrowers, while the RBNZ appear reluctant to return NZ borrowing rates to average too rapidly due to weak local spending. There appears little ahead to break the deadlock while the risk of a sharp US share price fall – and hence NZD fall – remains high.