The Reserve Bank of New Zealand left its 2.5% cash rate unchanged as expected overnight. Speaking after the announcement Governor Bollard indicated that the RBNZ still sees the need to remain in neutral, saying that the economy was subdued and consumers were cautious. He held to early predictions that the next rate hike would be in mid-2010, but then startled markets by adding that he did not foresee rates reaching as high as in the previous cycle, pointing to tight financial market conditions that would put a brake on growth; this statement caused the Kiwi to drop 50 pips rapidly and it has since continued to decline. Like other high-yielding currencies the Kiwi is a favorite of carry-traders wishing to benefit from positive interest rate differentials, and Bollard's statement has probably reduced its longer-term attractiveness. Bollard added that New Zealand's GDP growth is expected to be around 4% in 2011 and inflation should remain within the 1-3% target band.
Australian employment data came out partially as expected with the unemployment rate remaining stabile at 5.3%, while the employment change was substantially weaker than expected. New jobs in February grew by only 400 versus an expectation of 15,000. The Aussie dropped lower on the news but was quickly bid back-up in trading reminiscent of yesterday's weak Home Loan figure which also caused a short-lived hiccup in prices. Carry-traders are still game for the Aussie as interest rates down under are at 4% and rising with the next anticipated hike coming by June. Some analysts are still predicting an April hike by the RBA. Q4 GDP for the Land Down Under grew by 0.9% as strong Chinese demand for resources rocket-boosts the Australian economy which was one of the few in the world to escape the recent recession.
The much anticipated economic data from China was stronger than expected but left markets unmoved as rumors abound that the data was leaked domestically yesterday. CPI completely overshot the 2.3% y/y expectation, coming in at 2.7%, while Industrial Production rose by 20.7% against a Reuter's poll forecast of 19.5% y/y. Retail Sales were released in-line with forecasts at 17.9%. The big jump in CPI and production may encourage the POBC to increase the pace of tightening measures designed to withdraw the massive stimulus unleashed last year. Such a move would worry Asian investors who are wary of slower growth in China. China's growth has been pivotal in pulling the region and the world out of recession. While China could dampen the pace of economic growth by letting the Yuan appreciate, the regime is still reluctant to do so and any moves in the USD peg in 2010 should be incremental at best.