Surprisingly enough, yesterday?s rate hike from the RNBZ was not the primary driver of the kiwi?s plummet today. New Zealand?s central bank hiked rates by 25 basis points after a number of economic indicators signaled inflationary pressures were intensifying.
[B]New Zealand?s Official Cash Rate Hiked to 8.25%[/B]
New Zealand?s central bank hiked rates by 25 basis points after a number of economic indicators signaled inflationary pressures were intensifying. The OCR increase barely surprised the markets, but was of particular interest was the dovish rhetoric expressed by the Reserve Bank.
[B]RBNZ Faces Opposition over Interest Rate Decision[/B]
The latest interest rate hike by the Reserve Bank of New Zealand- the fourth increase in as many months - faced a lash out from political circles. New Zealand?s Finance Minister, Michael Cullen, commented that the central bank?s overall dovish tone was “pleasing”. The Finance Minister also attempted to counter accusations that excessive public expenditure for the Labor Party?s re-election campaign was stoking inflationary pressure. Meanwhile New Zealand?s political parties continued to volley blame on the persistence of inflation on factors ranging from world oil prices to deficiencies in the Reserve Bank Act to constraints in production capacity.
http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10454050[I]Source: The New Zealand Herald[/I]
[B]Goldman Sachs Downgrades Ratings on Auckland International Airport[/B]
In a move that may well be reflected by a downfall in AIA?s share price during Friday?s trading session, Goldman Sachs JB Were lowered its rating on Auckland International Airport from buy to hold. The downgrade in ratings appears to convey skepticism over the chance that the takeover bid by Dubai Aerospace Enterprise may pass the due diligence test being conducted by the Overseas Investment Office.
[B]Currency Market - NZD:[/B]
Surprisingly enough, yesterday?s rate hike from the RNBZ was not the primary driver of the kiwi?s plummet today. New Zealand?s central bank hiked rates by 25 basis points after a number of economic indicators signaled inflationary pressures were intensifying. In Governor Bollard?s post decision rhetoric, he said, “Provided they keep this up (moderating borrowing), and the pressure on resources continues to ease, we think the four successive rate increases we have delivered will be sufficient to contain inflation.” Despite Bollard?s dovish remarks, today?s currency market headlines were painted with risk-averse traders dumping their carry trade positions, sending high yielding currency?s lower. Although now more appealing with its 8.25 percent yield, traders relinquished their hold on the New Zealand dollar following an increase in credit default swaps, reflecting an increase in risk aversion. The New Zealand dollar dove almost 200 pips against the US dollar to its most recently quoted price of 0.7826.
[B]Equity Market - NZSX-50 Index:[/B]
New Zealand?s stock market held steady, with the benchmark NZSX-50 index closing up a modest 0.8 points at 4325.78 on turnover amounting to NZ $179.7 million. Declines outweighed gains 56 to 52. The announcement of a much-anticipated 25 basis points hike in New Zealand?s official cash rate failed to trigger any significant reversal in the downtrend in the share price of export manufacturers. As takeover talks hung by a thread during the review of the current bid for Auckland Airport by the Overseas Investment Office, AIA stock dropped 4 cents to NZ $334.
With the earnings season about to commence, the equity market is likely to seek direction from corporate profitability outlooks. Moreover, the strong declines on Wall St. on Thursday could lead the NZSX-50 lower during the next trading session.
[B]Fixed-Income Market - 10-year Government Bonds:[/B]
Yields on the benchmark 10-year government note declined to 6.817 percent from yesterday?s close of 6.843 percent. Demand for New Zealand?s government debt is likely to be buoyed by a worldwide surge in risk aversion that may erode investor appetite for comparatively risky investments in the equity and currency market.