Here's my summary of the key events overnight, with news of the New Zealand dollar taking a hit with the Aussie, further to the Reserve Bank of Australia cutting interest rates to a record low.
The RBA cut its the official cash rate by 25bps to 1.75% yesterday, as it prioritised the threat of deflation over high house prices. The cut comes less than a week after a shock drop in core inflation to well below the central bank's 2-3% target band. Most economists expect a second cut before the end of the year.
The question is, how will the RBA's move affect what the RBNZ does when it next reviews rates next month? A number of economists are expecting to see a cut to 2.0%
Australia's 2016 Budget, released last night, shows its Treasury remains upbeat on the economy. It expects households, supported by more jobs and lower petrol prices, will continue to invest and save, and that non-mining investment will pick up. It also forecasts lower inflation over four years, and GDP to grow at 2.5% for the next two years, before picking up to 3%. Reporting a deficit of $37 billion, it has pushed out it expectations for a return to surplus well into the future.
The Budget marks a win for small businesses and companies, which will benefit from tax cuts. High income earners will also benefit from tax cuts, yet changes in superannuation will see them hit hardest. Treasury has taken a hard line against corporate tax evasion, introducing a "Google tax" that will see a 40% penalty tax rate on profits shifted offshore. The Budget's also seen New Zealand residents given a streamlined path to permanent residency.
In other news, there hasn't been much movement at the fortnightly GlobalDairyTrade auction overnight. The index has fallen 1.4% to US$2,203/kgMS, while the price of Whole Milk Powder has increased 0.7% to US$2,175/kgMS. Looking at the results in New Zealand dollar terms, the index has actually risen 0.2%. The weak result during the seasonal low for GDT supply, coupled with the strong NZ dollar, is concerning and will put pressure on Fonterra’s milk price forecast at the end of the month
In New York the benchmark UST 10yr yield has dropped to 1.79%.
The US oil price has also dipped from this time yesterday, to just below US$44/barrel, while Brent is at US$45/barrel.
The gold price has fallen to US$1,287/oz.
The NZ dollar has been treated as collateral damage from the RBA's rate cut. It's fallen nearly a cent over the last 24 hours to 69.2 US¢. Yet with the Aussie dollar taking an even bigger hit against the US, the NZ dollar has strengthened to 92.4 AU¢. It's weakened to 60.1 euro cents, while the TWI-5 index has dropped to 71.9.
We can expect to see the NZ dollar shift with Statistics New Zealand releasing its quarterly unemployment report later today. ANZ believes the figures will paint a reasonably solid picture, with the question being how will the unemployment rate behave following the surprise plunge last quarter to a near seven-year low.
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 ».
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