The New Zealand dollar rose more than 50 points against the U.S. dollar in early Asian trading on Wednesday on the impact of the RZF decision. Tonight, Beijing time, investors will be again braced for a speech by federal reserve chairman colin Powell, which yesterday spurred a stronger dollar and weighed on gold prices. Gold bulls could face another test tonight.
The New Zealand federal reserve bank of New Zealand rallied on hold
The New Zealand dollar rose sharply against the dollar in the short term after the reserve bank of New Zealand left its official cash rate unchanged at a record low of 1 percent on Wednesday and signaled there was no chance of a rate cut this year.
The RBNZ expects the official cash rate to be 1.03% in the first quarter of 2020 and 1.01% in the second quarter of 2020; The official cash ratio is expected to be 1.01% in the third quarter of 2020; The official cash rate is expected to be 1% in the fourth quarter of 2020.
The reserve bank of New Zealand noted that the outbreak of pneumonia was an emerging downside risk and that low-interest rates were necessary to maintain employment and CPI targets. The economic impact of the outbreak on New Zealand was short-term; GDP growth is expected to pick up in the second half of 2020; Forecasts suggest there is little chance of a rate cut in 2020, with increases not expected until mid-2021.
The NZD surged more than 50 points to 0.6463 against the dollar shortly after the decision, as the RZB said the economic impact of the outbreak of pneumonia on New Zealand was short-term and the RZB forecast showed little likelihood of a rate cut in 2020.
Mufg analysts said: “domestic economic data continued to surprise on the strong side following the release of better-than-expected inflation figures, which reached an annualized rate of 1.9 percent in the fourth quarter of last year, well above the RZB’s forecast of 1.6 percent. As a result, the interest rate market in New Zealand has further lowered expectations for a rate cut. According to the survey, there is only a 25% chance that the RZB will cut rates once this year.”
The bank’s analysts added: “the drop-in rate cut expectations have given the NZ dollar an effective boost and could even see a strong resistance of 0.6800 against the dollar. However, this is expected to limit the pair’s near-term upside.”
Powell’s speech came back
Fed chairman colin Powell will testify before the Senate banking committee on the semiannual monetary policy report.
The dollar hit a four-month high against a basket of currencies on Tuesday on federal reserve chairman colin Powell’s upbeat view of the U.S. economy in congressional testimony.
The fed left its benchmark interest rate unchanged at its January policy meeting, citing moderate economic growth and a strong job market.
Powell also mentioned the potential threat from new pneumonia, as well as concerns about the long-term health of the U.S. economy.
Despite the virus threat, Mr. Powell said the fed’s policy was well placed after a series of rate cuts in 2019.
“As long as the latest economic information is broadly consistent with this outlook, the current monetary policy stance is likely to remain appropriate,” he said.
Gold prices fell on Tuesday as a rising dollar and a slowing pace of new cases of pneumonia eased some concerns about the impact on the global economy, sending investors into riskier assets.
Spot gold fell 0.23 percent to $1,567.51 an ounce. COMEX gold for April delivery closed down $9.40, or 0.6 percent, at $1,570.1 an ounce.
On Wednesday, spot gold continued to trade in a tight range around $1,565, watching the progress of the outbreak and the performance of the dollar.
David Meger, head of metals trading at High Ridge Futures, said: “gold is down slightly and equities are at another round of record highs because of talk that the impact of the coronavirus is overdone. Given the strength of global equity markets and the fact that gold has continued to perform so well, it remains an easy buy.”
Responding to the outlook for gold, Peter Hug, global head of trading at Kitco Metals, wrote that gold was at a tipping point.
Hug pointed out that gold prices have reached a critical crossroads, with macroeconomic forces poised to pull gold in either direction.