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On March 23, Federal Reserve Governor Milan stated that the central bank should not base its policy decisions on short-term factors related to the conflict between the US and Israel in Iran. Milan said, "We should gather all the relevant information before we really change our view. And I think its too early to have a clear understanding of what will happen over the next 12 months." The conflict in the Middle East has led to a sharp rise in oil prices, which could put upward pressure on inflation and negatively impact economic growth and the labor market. The Federal Reserve kept its benchmark interest rate unchanged again at its meeting last week, marking the second consecutive time it has made this decision. Policymakers acknowledged that economic uncertainty has increased due to the escalating conflict, and Fed Chairman Powell emphasized that officials need to see more progress in reducing inflation. Milan opposed this decision, preferring a 25-basis-point rate cut. However, Milan acknowledged that if oil prices remain high, it could gradually affect other goods and services sectors, but he stated that his pre-war expectation of four rate cuts this year remains unchanged.Federal Reserve Governor Milan: If it appears that the effects of the oil shock will spill over into inflation expectations after the first year, then you should be worried about a second-round effect.Federal Reserve Governor Milan: In my summary of economic projections, I raised my year-end inflation dot plot to 2.7%, expecting overall inflation to rise.General Motors: Initiates regulated public road testing of next-generation autonomous driving technology.Federal Reserve Governor Milan: The risks of fulfilling a dual mandate are now increasing.

NZD/USD drops to 0.6440 due to New Zealand's weakness Pre-Fed warning probes bears: HYEFU, RBNZ

Alina Haynes

Dec 14, 2022 11:36

NZD:USD.png 

 

In order to justify a new intraday low of 0.6440 on Wednesday morning, the New Zealand dollar (NZD/USD) points to New Zealand's (NZ) poor Half Year Economic and Fiscal Update (HYEFU). The Reserve Bank of New Zealand's (RBNZ) statements and the cautious atmosphere leading up to the important Federal Open Market Committee (FOMC) monetary policy meeting, however, have put a damper on recent pair selling.

 

According to Reuters, the New Zealand Treasury expects the Gross Domestic Product (GDP) to increase at a negative rate for three quarters of the current fiscal year 2023. (CY23). Additionally, according to the report, New Zealand will have a budget deficit of NZ$3.63 billion ($2.34 billion) for the fiscal year that ends on June 30, 2023, which is lower than the NZ$6.63 billion deficit forecast in the country's budget released in May.

 

The RBNZ crossed wires through Reuters after the negative announcements, saying that "Even with the predicted decline in the period ahead, it is envisaged that the level of employment will remain strong." The central bank of New Zealand also stated that both the current and expected rates of inflation must be kept under control.

 

However, it should be noted that recent worries coming from China, mostly because of internal and external pessimism on the Covid situation, seem to favor the NZD/USD to hold its gains from the previous day. The latest spike in daily Covid cases has led International Monetary Fund (IMF) Managing Director Kristalina Georgieva to predict worse economic development for China. Additionally, Bloomberg stated that the COVID-19 outbreak caused the Chinese leadership to cancel the discussion on economic policy. In 2023, the Asian Development Bank (ADB) revised down its estimate of China's GDP growth from 4.5% in September to 4.3%.

 

After the US Consumer Price Index (CPI) for November dropped to 7.1% from 7.3% and 7.8% earlier, the US Dollar Index (DXY) decreased on Wednesday. Additionally, the Core CPI, also known as the CPI excluding food and energy, fell to 6.0% YoY during the designated month, below both market forecasts of 6.1% and previous readings of 6.3%. "Traders of futures tied to the Federal Reserve's policy rate upped their bets that the U.S. central bank will delay its interest-rate increase pace further in the first quarter of 2019," according to Reuters, after the release of the data.

 

In light of this, Wall Street ended the day up, but the S&P 500 Futures lack a clear trend. Additionally, US Treasury bond rates haven't changed in three days despite dropping to their lowest level in a week.

 

Future NZD/USD price movement may be constrained by pre-Fed concerns, although bears may sustain optimism at the multi-day high if they expect a surprise hawkish Fed action.

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