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The RBNZ left the official cash rate unchanged at 1.50% Wednesday. With subdued domestic growth and a weaker global economic outlook a lower cash rate should be required to meet the RBNZ goals. Domestic growth has slowed with the services sector, and house prices have continued to dampen spending. Inflation is expected to rise to around 2.0% target range supporting growth with employment to stay at the maximum sustainable levels for a while longer. Overall the RBNZ said the outlook for the domestic economy has softened compared to May projections with a lower OCR rate more than likely needed and should be cut again on the 8 August meeting. The New Zealand Dollar dropped half a cent on the release taking out a bunch of market longs (long NZD trades) to 0.6595 against the US Dollar before retracing higher to post a fresh high just shy of 0.6700. With Gold higher, Crude Oil higher and Iron Ore prices charging to 110.00 per tone the Australian Dollar also has outperformed this week, the kiwi has mostly travelled with it – the main reason we see a perky NZD after the published RBNZ dovish statement.
Boris Johnson is again stirring the Brexit pot of poison after re-confirming where he stands. He wants to remove the UK from the European Union on the 31st of October 2019 with or without a deal. This comes after he said a “no deal” Brexit outcome is at a million to one odds with the general mood and willingness among MP’s to get a deal done. The next husting event is tonight with a further 13 to follow and a Northern Ireland leg to be confirmed prior to the 22nd July announcement of a new prime minister.
Trump and Xi Jinging have agreed to rondevu at this week’s G20 meeting in Osaka to talk again on the trade tariffs. Any resolution to the current trade situation looks slim and we should not expect a result any time soon. Both parties are hoping for a compromise, a little flexibility to clearly gain an upper hand on negotiations and opponent – both parties I dare say will not want to show any weakness or compromise.
Markets should turn risk averse into Friday and through the weekend as headline news airs with news on meetings with Trump and Xi and Trump and Putin. Both have expressed an appetite to mend relationships with the United States. The problem lies with Trump being able to negotiate policies with both countries being agreeable to both.
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