90 seconds at 9 am: Fed signals December hike

Fed holds but signals December hike; US trade deficit falls; China green-lights pension fund equity buying; Australia facing fall in real wages; UST 10yr yield 2.09%; oil and gold rise; NZ$1 = 66.5 US¢, TWI-5 = 71.9

29th Oct 15, 7:22am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news that the US Fed has kept its policy rate unchanged again.

But it did explicitly say it will look at whether it will "raise the target rate at its next meeting". That seems a pretty clear signal to me.

The NZ dollar fell sharply on the announcement.

In a rare act of bipartisanship, the US Congress has overwhelmingly revived their ExIm Bank, a shameless trade subsidy for their largest companies. Corporate threats to move some manufacturing offshore were influential.

This deal came before the September trade balance for the US was announced which came in much better than expected - exports were up, imports were down.

China has confirmed new rules allowing the country's pension funds to buy in their stock market in 2016. The move is expected to unleash a potential inflow of about NZ$500 bln or about 30% of the pension funds' net assets.

Yesterday's Australian inflation number - +2.2% pa on a weighted mean basis - along with an underlying economy that is facing strong head winds, may well mean that workers there will be facing declining real wages. And that will contrast to a much better situation on this side of the ditch. Positive trans-Tasman migrant flows could well rise in 2016.

In New York, the UST 10yr yield benchmark rose today is now at 2.09%.

Also gaining was the US benchmark oil price which is now just under US$46/barrel, and the Brent benchmark is just under US$49/barrel.

The gold price also jumped, now at US$1,183/oz.

The New Zealand dollar starts today lower after the Fed announcement at 66.5 US¢, at 93.9 AU¢, and at 60.7 euro cents. The TWI-5 is at 71.9.

Stay tuned for the 9am announcement of the RBNZ OCR review. We will have full coverage, although no change is anticipated.

If you want to catch up with all the local changes yesterday, we have an update here.

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

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

8 Comments

by MortgageBelt | 29th Oct 15, 7:37am 1446057462

No change from the RBNZ today. They are under a mandate to maintain NZs high interest policy.
Inflation Targets? Not relevant.

by Roger Witherspoon | 29th Oct 15, 7:55am 1446058533

But, but, but... iIf they put interest rates down then Auckland house prices will go hyperbolic. Then 100s of tower blocks will get built until there are three times the number of apartments than people who can afford them. Then the apartment market will fall apart and prices will crash. Now you know we can't have that because we would then get cheap housing.

by Halfway To Paradise | 29th Oct 15, 11:41am 1446072064

They will only build what they can sell, or at least expect to sell.

by sharetrader | 29th Oct 15, 8:02am 1446058931

unlikely they will hike in December, they are still waiting for inflation but it is not happening because people are not spending

by David Chaston | 29th Oct 15, 8:13am 1446059601

That is just not true for either the US, or for New Zealand. Retail sales are growing. In both countries, people are spending at record levels.

by PeakEverything | 29th Oct 15, 8:44am 1446061487

Unrelated but I saw this article this morning and thought it might be of interest to some. I don't agree with everything but at least it faces the tough issues. Bill Gates "We need an energy miracle"

http://www.theatlantic.com/magazine/archive/2015/11/we-need-an-energy-m…

by Andy Rodgers | 29th Oct 15, 9:20am 1446063650

PE - Thanks for the link. I thought the video regarding terrapower was very interesting.

by Stephen Hulme | 29th Oct 15, 10:21am 1446067288

...US Fed has kept its policy rate unchanged again.

But it did explicitly say it will look at whether it will "raise the target rate at its next meeting". That seems a pretty clear signal to me.

Clear as mud to me, while the Fed is incapable of correctly counting and managing the Fed Funds rate as it stands.

But there are certainly many long suffering US citizens in need of support to boost savings.

The retirement savings accumulated by just 100 chief executives are equal to the entire retirement accounts of 41 percent of U.S. families -- or more than 116 million people, a new study finds. Read more