The RBNZ left financing conditions untouched at 1.75%, noting other in its press release than the news that the core inflation in the country remains low. The bank indicated a growing demand in commodity markets, which accelerates the price growth of the tradable goods, as well as a 5% decline in the trade-weighted NZD rate since February 2017. This, in turn, had a positive effect on the country’s export sector. Inflation in the housing market has moderated further, what essentially allows to keep rates low without many concerns. But in Australia, finding a balance in the interest rates is a big headache for the RBA, as the real estate market boom spurs prices growth, which is further fuelled by the low rates and loosened lending conditions.
For NZD, the dovish stance of the Central Bank was kind of a surprise, as the NZD/USD lost 0.70%, falling to the lowest level of the year. A pullback is expected in the short term, however, there are no visible reasons for the stable strengthening of the currency.
The Bank of England will decide on the interest rates today, as well as share its outlook on inflation, economic growth, political and external risks. It’s expected that the policymakers will adhere to the current QE trajectory as the wait-and-see stance is the best that Carney’s team can do for now in order to minimise the possible repercussions of Brexit. The markets will be put under great scrutiny. The inflation fuelled by the Pound’s decline is certainly not BoE’s sufficient target, as the core benchmarks remain weak, and political risks have not been cancelled.
The US Dollar may see a splurge in volatility after the release of unemployment claims report, which is expected to indicate the excellent health of the labour market, given that unemployment in the US continues to decline. In April, it was 4.4%, the lowest level since June 2007.
The Oil prices soared more than 3% on Wednesday due to the surprising cuts of the US commercial reserves, as shown in EIA’s weekly account. Stockpiles have shrunk by the 5.2M barrel to the level of 522.5M, which is the upper limit of the average range in the current time of the year. Refinery input averaged at 16.8M barrels, 418K barrels less than the average of the previous week. Imports were 7.6M barrels, decreasing by 644K barrels compared to the previous week.
The decrease in stocks is generally considered a positive signal for the Oil market, as it improves the rebalance prospects. Coupled with encouraging statements of the OPEC officials about maintaining the production quotas in the second half of this year, it would be appropriate to consider long positions with the target above $50 per barrel. Interestingly, after yesterday’s sharp recovery there was no significant correction and the prices continued to rise on Thursday. Bulls are cautiously trying to find resistance, but the main obstacles of the WTI are probably concentrated above the $50 per barrel, and therefore a bullish play from current levels seems to be quite safe and attractive.