RBNZ tone adds to Fed speculation
A quiet Asian session as equity markets staged a mild recovery ahead of Brexit uncertainty. The increased probability of a soft or no Brexit has encouraged investors. However, this one will clearly go down to the wire. The GBP trade still is asymmetrical with upside from an EU relationship likely resulting in strong GBP buying. Earlier, the Reserve Bank of New Zealand held the official cash rate at 1.75 as was widely anticipated. However, the meeting took a dovish turn as the committee stated that the “more likely direction” for rates would be lower. This shift in tone has increased the risk easing of monetary policy.
According to market IOS pricing a cut at the May meeting is unlikely (but not impossible) the August meeting is clearly in play. The NZD reacted sharply to the dovish twist falling over 1%. In general, the news that the RBNZ was contemplating benchmark rate cut would be isolated to Asian markets. However, as speculation that the Fed next move will be to cut rates, the widening circle of dovish central bank only solidifies the theory. US treasury yields fell marginally while the greenback gained against g10 currencies.
Brexit still in focus (again)
It is going to be long day for UK lawmakers, as the Commons will start voting on alternatives on Wednesday. This morning, each MP will have to choose which alternatives he/she wants to back. Afterwards, the alternative with the highest support will win. The range of conceivable options is quite broad – more than 15 alternatives – and encompass a custom unions, common market, no deal, revoking article 50 or even a second referendum. Keep in mind that the series of vote is indicative; therefore we doubt there will be a conclusion today. Investors will have to keep patience.
GBP/USD has been trading sideways around $1.32 since the beginning of the week amid persistent uncertainties stemming from the Brexit situation. We anticipate that the fact that MPs took over the control wouldn’t accelerate the process and therefore we would surprise to see the UK asking for another extension. As of today, the UK will have to come with a solution before April 12, or it will be a no deal Brexit. EUR/GBP has stabilised around 0.8445. We believe that even in the event of a no deal Brexit, the economic slowdown of the European Union would inevitably weighs on the single currency, at least in the long-term.
