Macroeconomic round up: RBNZ dovish, US Fed hawkish, RBA in limbo

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To no one’s surprise, the US Federal Reserve kept its interest rates on hold this morning, followed some hours later by the Reserve Bank of New Zealand (RBNZ) doing the same.

The two central banks’ are on different levels when it comes to their respective biases – the RBNZ looks more dovish, indicating rates will be cut, and the Fed still suggesting hikes are on the way.

Although Fed chairwoman Janet Yellen indicated she was less dubious about global volatility than she was in her September announcement, she iterated the Fed would hike rates when employment picks up and inflation moves closer to 2%.

Analysts are now looking favourably at a rate hike before the end of the year, with futures contracts implying a 43% possibility December is the call, compared to 34% prior to the statement, according to Reuters.

But some concerns have been raised over the economic health of Europe.

European Central Bank (ECB) president Mario Draghi indicated more quantitative easing (QE) may be necessary in the eurozone.

Europe dived into QE at the beginning of this year, whereby Europe’s central bank will inject up to €60 billion a month into the eurozone.

The implications of the ECB decision didn’t take long to ripple down to Australia.

The Reserve Bank of Australia may be looking at cutting its interest rates to prevent an unwelcome rise in the Aussie dollar.

This follows a string or soft economic data in Australia. Earlier this week, the consumer price index (CPI) came in below expectations, increasing 0.5% quarter-on-quarter, compared to a market consensus of 0.7%.

Earlier in the month, the RBA revealed GDP increased by just 0.2% in the second quarter of this year. This is a sharp reduction on the first quarter’s 0.9% expansion.

This has put a question mark over the RBA’s interest rate decision next Tuesday, as to whether rates will be cut to 1.75%.

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