Could have been higher
A jump in headline US inflation from 1.7% to 2.6%, a three-year high, had the unusual effect of sending the US dollar sharply lower. It lost an instant quarter of a cent to the euro. The dollar lost ground to the British pound, too, but the move was much less clear-cut.
The dollar’s problem was that the higher rate of inflation was not high enough. Ahead of the report, investors had fancied that a big number would influence the Federal Reserve to consider raising interest rates, despite the Chairman’s assertions to the contrary. However, once again Jerome Powell insisted that the spike in inflation would be “transitory”; the result of unusually low prices 12 months ago. Although the 0.6% monthly rise in prices was the biggest in eight years, every component of the consumer price index data was within one basis point of forecast. The USD took last place for the day, falling an average of 0.6%.
Sterling’s day was spoiled by news that the Bank of England’s Chief Economist, Andy Haldane, will be leaving later this year. Mr Haldane has been seen as a positive influence on the pound, first because of his tendency towards hawkishness on monetary policy, and second because in recent months he has been one of the main cheerleaders for Britain’s economic recovery. The pound shared the penultimate place with the Canadian dollar, half a cent ahead of the US dollar.
There were three different stories about confidence. German investors' are less optimistic, Eurozone investors are quite a bit less upbeat, small US business leaders are more confident and Australian consumers are popping.
ZEW’s measures of economic sentiment showed a six-point fall to 70.7 in Germany and an eight point fall, to 63.3, for the Eurozone as a whole. It was the first decline for Germany since November. Nevertheless, “expectations are still at a very high level”. In the United States the NFIB small business optimism index improved for a second month, rising two and a half points to 98.2 in March. Overnight Westpac reported “an extraordinary result” for Australian consumer confidence as it rose to an 11-year high.
The other overnight report covered visitor arrivals in New Zealand from abroad. As has been the case since last April, the annual decline was above 97% as a consequence of the closed border. Expect to see incredibly large increases from April onwards, when the AU-NZ travel bubble comes into effect and the base year effect magnifies the change.
RBNZ no change
The Reserve Bank of New Zealand did as expected this morning, keeping monetary policy unchanged and continuing with the Large Scale Asset Purchase (quantitative easing) programme. The Official Cash Rate will remain at 0.25% for a 14th month.
In its statement the RBNZ reiterated the now almost OECD-standard commitment to maintaining a loose monetary stance until there is sustainable 2% inflation and full employment. The committee is ready to lower the OCR if necessary but there was no mention of a negative rate. The NZD was the day’s top performer, strengthening by an average of 0.6%.
Today’s ecostat agenda is a fairly dull affair, with nothing of any real importance until tonight’s Australian jobs numbers. There are quite a few central bank speakers though, including the ECB’s Luis de Guindos, Fabio Panetta and Isabel Schnabel, Jonathan Haskel from the Bank of England, and the Federal Reserve’s Jerome Powell, John Williams and Richard Clarida.