How Much Will New Zealand Cut Interest Rates?

Everyone is focused on the Federal Reserve’s interest rate decision at 2:15pm ET this afternoon, but I actually have my eye on the Reserve Bank of New Zealand’s rate decision. With interest rates already at a target range of 0-0.25 percent, the Fed’s ability to surprise the market is virtually nil. The RBNZ on the other hand has a number of options at their disposal.

New Zealand interest rates are currently at 3 percent and the market forecasts a 50bp rate cut this afternoon (5pm ET) that would bring rates down to a record low of 2.50 percent. However a half point cut is not a done deal as there are reasons for the RBNZ to over and under deliver:

Business confidence has been improving while retail sales actually increased in the month of February. Yet the recent rally in the New Zealand dollar will lead to tighter monetary conditions for the region as a whole. Prime Minister John Key also openly admitted earlier this month that the country cannot afford additional fiscal spending because it could provoke a credit ratings downgrade. Instead, they are planning to cut government spending. One of few ways to offset lower fiscal stimulus is through monetary stimulus and therefore the RBNZ may be compelled to over deliver and possibly talk of further easing to come.

With interest rates at relatively high levels, the RBNZ is not ready to embark on Quantitative Easing. Currency intervention is also unlikely because that has always been a losing battle for the central bank.

The New Zealand dollar is up more than 3 percent today which suggests that forex traders expect a kiwi positive decision from the RBNZ. Either way, the central bank interest rate decision will play a large role in determining where the currency is headed next.

source: eSignal

source: eSignal

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AUD/NZD: Further Gains Ahead?

Comments from RBNZ Governor Bollard this afternoon triggered a sharp sell-off in the New Zealand dollar. After having already cut interest rates by 525bp, he is telling us that the New Zealand economy could still weaken and because of that, he is not happy with the rise in long term yields. So this suggests that either Bollard is planning to cut interest rates again at the end of the month and/or he will consider buying longer term bonds to drive yields lower.

Australia on the other hand could very well opt for a 25bp rate cut or not cut at all at their monetary policy meeting next week. Goldman Sachs Australia is calling for no rate hike and their forecast is supported by a piece written by Terry McCrann, a well known journalist covering the economy. He argues that the RBA has done more than most central banks and because of that, they have the luxury to pause.

The diverging interest rate outlook could lead to further gains for AUD/NZD. The 1.24 level is a fairly significant resistance point but if the currency pair manages to close above that level, we could see a move to 1.26.

Source: eSignal

Source: eSignal

Updated! Salaries of Central Bank Governors

The job of turning around the global economy lies of the shoulders of just a few people and in this group includes central bank governors. With such a tall task at hand, it leads me to wonder what are the people with such power and responsibility making. Is it enough to compensate for the sleepless nights, grey hairs and anxiety?

Here’s the latest data that I could find on central bank salaries. Some of these are exact numbers from annual reports, some are estimates based upon ranges and publicly available estimates.

**I added SNB President Roth who made a whopping $725,468 last year

Ben Bernanke (U.S.): $191,300 (in 2008)

Jean-Claude Trichet (EUR): $446,806 (EUR 351,816 in 2008)

Mervyn King (U.K.): $435,000 (GBP 290,000 in 2008)

Masaaki Shirakwa (JPY): $370,000 (in 2007)

Jean-Pierre Roth (CHF): $725,498 (CHF 817,700 in 2008)

Mark Carney (CAD): $350,000 max (in 2008)

Glenn Stevens (AUD): $160,000 (AUD 200,000 in 2008)

Alan Bollard (NZD): $378,000 (NZD 540,000 in 2007)

Who is the highest paid central banker in the world?

Joseph Yam (HK) $1.32 million (HK$10.33M in 2007)

Do you think these central bankers should be paid more or less? Chime in!

AUD/NZD: Opportunity to Buy?

I am really bullish AUD/NZD and believe that this may be a good opportunity to scale into a long position. The currency pair has been rallying for 7 days straight and is finally retracing. It is in the buy zone, which I determine using Bollinger Bands. Fundamentally, the RBA left interest rates unchanged Monday evening and even though data overnight was weak, the Australian dollar continues to rally as the central bank talks up the economy and the currency.

However the big reason why I am bullish the currency pair is because New Zealand has a rate decision next Wed and they are expected to cut interest rates by 75bp!!! Even if the RBNZ cuts by 50bp, that is already more bearish for the NZD relative to the AUD.

As long as AUD/NZD holds above 1.2650, I expect a move to 1.30 and if that is cleared as well, the next area of resistance is the 2000 high of 1.3629.

source: eSignal

source: eSignal

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Kathy Lien’s Interview on Australian Dollar

Last night, I was on Sky News Australia talking about a variety of things ranging from the Federal Reserve’s policy action, China, the US dollar, the Euro, the Australian and New Zealand dollars.

Here’s the interview:

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I also talked to Chip Hanlon of Greenfaucet.com about my new book, Day Trading and Swing Trading the Currency Market – second edition.

Listen to the podcast