Daily Brief

Daily Brief

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Rates falling everywhere

Dovish-aggressive RBNZ

The big mover overnight - and it was big, with a 2.2% drop - was the NZ dollar. Investors had half expected the Reserve Bank of New Zealand to cut its official cash rate from 1.5% to 1.25%. In fact, the RBNZ cut by 50 basis points to 1.0%.  

In the realms of shock-and-awe monetary policy-making, the move was right up there. When the Turkish central bank cut its benchmark by four and a quarter percentage points to 19.75% last month, it lowered the rate by about a sixth: the RBNZ lopped a third off the OCR this morning. The statement reveals that it was a toss-up between a 25- and a 50-basis-point cut and 50 won. In his press conference, governor Adrian Orr twisted the knife with an observation that "it's easily within the realms of possibility that we might have to use negative interest rates". The Kiwi is four cents lower on the day.

In true antipodean tradition, the Aussie was sucked down by the plunging NZ dollar, losing two and a quarter cents to sterling and touching a ten-year low against the US dollar. Investors saw the RBNZ move as upping the ante for further cuts by the Reserve Bank of Australia.

Race to the bottom?

The RBNZ was not the only central bank to cut its benchmark rate this morning. India's reserve bank lowered its repo rate by 35 basis points to 5.4%. There, too, the move was bigger than the expected 25bp. Banco do Brasil cut from 6.75% to 6.5% last week.

They may not exactly be competing but the world's central banks all seem to be pointing in the same direction towards lower rates. In every case there is concern, to a greater or lesser degree, about the global economy. With the Bank of England stuck where it is, probably until October, falling rates elsewhere would be positive for sterling were it not for the looming no-deal Brexit.  

The pound did alright on Tuesday though. Its only loss was two thirds of a yen, 0.5%. Sterling was flat against the euro and a whisker ahead of the US dollar, with an average daily gain of 0.5%.  

House prices

After yesterday's dearth of European and North American data, the agenda is only very slightly more interesting today. House prices are all that is to be expected from Britain's statisticians; the Halifax house price index this morning and the RICS Housing Price Balance tonight.

Australian housing-related data released overnight showed a steeper decline in the construction sector and a slowdown in mortgage lending. This morning brought news of more industrial gloom from Germany, with production falling 1.5% in June.  

After lunch, Canada's Ivey purchasing managers' index is expected to show a modest improvement from 52.4 to 53. Tonight China reports on July's balance of trade.

GBP: Second only to the yen

GBP: Second only to the yen

NZD: Swinging RBNZ rate cut

NZD: Swinging RBNZ rate cut

AUD: Dragged lower by Kiwi

AUD: Dragged lower by Kiwi

INR: Rate cut there too

INR: Rate cut there too

EUR: More German industrial gloom

EUR: More German industrial gloom

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