Wholesale interest rates slide further; official rate cuts imminent; US data soft; US Fed also tackles climate change risk; UK faces EU lockout; Aussie new house sales rise; UST 10yr yield at 2.05%; oil & gold up; NZ$1 = 66.3 USc; TWI-5 = 71.6

Wholesale interest rates slide further; official rate cuts imminent; US data soft; US Fed also tackles climate change risk; UK faces EU lockout; Aussie new house sales rise; UST 10yr yield at 2.05%; oil & gold up; NZ$1 = 66.3 USc; TWI-5 = 71.6

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Here's our summary of key events overnight that affect New Zealand, with news official interest rates are about to be cut in the key jurisdictions that affect New Zealand.

In advance, wholesale interest rates are falling. Local swap rates pushed on down to new record lows yesterday with the 1-5 curve flat and the 2-10 curve at a three year low of +40 bps. Benchmark Government bond yields also hit record lows. And both measures also hit record lows in Australia yesterday too. Driving rates down are market expectations of what the two central banks will do next week; the RBA is expected to cut on Tuesday, the RBNZ on Wednesday. And few analysts think this will be the last cut. Given both the New Zealand and Australian economies are in a relatively healthy state, it is unclear why these monetary authorities are choosing to fire their limited ammunition now.

But they are not the only ones. The US Federal Reserve seems to be on the same path. On Thursday this week (NZT) they are also likely to cut their benchmark policy rate by -25 bps, ending a policy of rate normalisation.

Meanwhile, the Dallas Fed regional survey showed that their general business conditions index was less negative in July than June.

Tame economic conditions are seeing trucking freight rates in the US falling quickly, due to the combination of flat demand and rising capacity.

Even in the Time of Trump, the US Fed is hosting a conference on how it needs to prepare for climate change. It says that "volatility induced by climate change" and efforts to prevent climate change are "increasingly relevant" for the Fed. It is trying to navigate between an unstable President and the impacts of a fast-changing climate. From any view, these moves are courageous.

In Hong Kong, just as Beijing throws it support behind "more forceful policy action", the city's public servants look likely to have their own demonstration protesting Beijing's incursions into the city's administrative life.

In Britain, their new no-compromise government is demanding renegotiation of Brexit. But the EU is saying negotiations have been had, and are completed. And Brussels is pointing out that the UK won't have access to EU financial markets in a hard Brexit. The UK currency fell on the news.

In Australia, new home sales for the three months to June rose, even if the rise was small. It was the first quarterly improvement in a year and a half, an early sign the market for new homes may be stabilising.

The UST 10yr yield is now at 2.05% and a -2 bps slip since this time yesterday. Their 2-10 curve is now at +21 bps and their negative 1-5 curve is at -15 bps. The Aussie Govt 10yr is at 1.21%, down another -2 bps since yesterday. The China Govt 10yr is up +3 bps to 3.21%, while the NZ Govt 10 yr is now at 1.51%, a further -3 bps fall on the same basis.

Gold is now at US$1,422/oz which is a +US$4 rise overnight.

US oil prices are marginally firmer today. They are now just over US$56.50/bbl. The Brent benchmark is also firm at just over US$63.50.

The Kiwi dollar starts today a little softer again, now at 66.3 USc. On the cross rates we are still firm at just on 96 AUc. Against the euro we are little-changed at 59.5 euro cents. That leaves the TWI-5 still at 71.6.

Bitcoin is also little-changed today at US$9,516 although volatility in-between has been +/- 3%. The bitcoin rate is charted in the exchange rate set below.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

Daily exchange rates

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USD 
NZD
End of day UTC
Source: CoinDesk

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18 Comments

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In some ways a currency war is a lot like a bank run. He who cuts first, wins. Quite how this plays out for us is not clear. We don't want to be like Germany and win battles but lose wars, which seems to be what has happened in Euroland (which has become Greater Germany essentially). It is clear that the Eurozone is committing suicide on many levels.

The major powers are having a rearrangement of power. If diplomacy is war by other means, so is trade. I think the RBA and RBNZ have understood this on some level and are responding tactically by front running the lumbering giants of the world economy.

I cannot see the issue here - cash in circulation in NZ, for instance, is a tiny fraction of bank assets - the costs about to be imposed on charities and leisure clubs etc seeking donations, tea money, hall rental fees far outweigh any possible good.

In any complex system, you gotta have some slack or the whole thing grinds to a halt. In financial systems, cash is that slack.

"Given both the New Zealand and Australian economies are in a relatively healthy state, it is unclear why these monetary authorities are choosing to fire their limited ammunition now."
Could it be that increasing demands on AUS/NZ banks to hold more security is getting a push back that rates will need to rise which will in turn push house prices down and cause a rush of mortgagee sales?

"Given both the New Zealand and Australian economies are in a relatively healthy state, it is unclear why these monetary authorities are choosing to fire their limited ammunition now."

Funny - I lifted that sentence as the key takeaway too. But my challenge is to David Chaston - I suggest to him that it is quite clear, if you monitor the correct things. Watch her shift the shadow across the graph - and note the dates mentioned. It explains why trying to figure out what's happening from reading money, is like trying to read tea-leaves. Time we included the big picture in our discussions.

https://www.youtube.com/watch?v=HMmChiLZZHg

"Given both the New Zealand and Australian economies are in a relatively healthy state, it is unclear why these monetary authorities are choosing to fire their limited ammunition now."

Um, because the economy especially in NZ is dependent on the velocity of new debt being created (mostly for housing) and there are signs this velocity is reducing, hello?? Put it another way, if they don't cut the rates, then NZ flirts with technical recession, basically because not enough people borrowed against housing in that quarter. That's unfortunately the situation. So, of course they cut rates. Cut them one quarter too late - boom recession. That's not healthy by the way.

We are being conditioned to pay more today to earn less tomorrow, until there is nothing. The time mechanics of money are ironclad.

Hi Dazz,

I think its a mixture of trying to drive our dollar lower to make our exports more affordable and for products sold in USD, these will equate to more NZD (help the dairy farmers).

Adding to that the record low property sales each month is stifling credit growth, which has a downstream effect on building and consumption, so making mortgage payments more affordable will stop the rot.

Its clear that we are heading for recession worldwide and its pretty much a race to zero in attempt to stave it off, it is supposed to be stimulating but IMO real stimulation is investment in R&D, Automation, renewable technologies, efficiency gains & sustainable farming etc. Instead the RBNZ will keep cutting and end up scratching their heads wondering how we ended up with a recession and stagflation

Adding to that the record low property sales each month is stifling credit growth

Hat-tip to the now exiled Joe Wilkes who banged on about this very point.

both very worrying articles!!!!!!

Not clear why using cuts now? Trying to get people to borrow more to buy houses. This is real driver of economy not dairy and tourism

CPI is below target so RBNZ is always going to cut OCR (that's what the computer tells them to do)... Nothing to see here... Move along folks.

Ha wondering why economies aren't growing when consumers have the bulk of their income tied up in debt repayments or just affording the bare necessities.

Accumulating wealth and economic growth are in direct competition with each other. The economy needs energy (money) to continuously flow and recycle. The bottleneck, entropy ensues when trying to hoard and store the energy, when it's tied up in financial assets that increase in price yet provide no added value.

Ha humans so clever

"Accumulating wealth and economic growth are in direct competition with each other"

Now true - we are consuming credit in the name of growth, not surplus.
Wealth is just a debt claim on future energy flows. You can accumulate as many claims as you like, but it all depends on the ability of the future to continually deliver increased surplus to consume or the claims continually devalue.

The manipulated price increases in assets (particularly since 08) is just credit leverage / financialisation of assets to try and create the appearance of an income stream IN THE ABSENCE of our ability to increase the surplus energy available to consume. We are hoarding paper claims .... but they cant actually be redeemed.

Its the surplus available to the system that holds MASS purchasing power up. And now we are battling to pump more credit into the system while physical forces continue to erode purchasing power.