Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
US shares inch higher ahead of Nvidia
Global markets were mostly quiet overnight as equity markets awaited tonight’s critical results from AI chipmaker Nvidia – the last of the so-called “Magnificent Seven” technology stocks to report after the companies fuelled a 27% rally in the S&P 500 over the last year.
Overnight, US shares ended at new all-time highs, with the S&P 500 and Nasdaq both closing at their best-ever levels. The Dow Jones was also higher but ended a little below all-time highs.
In FX markets, the moves were similarly muted, with the US dollar flat ahead of Thursday morning’s Federal Reserve minutes.
Most major markets were also flat with the USD/JPY, down just 0.1%, and most other markets unchanged.
RBNZ in focus
The one key market to move overnight was the NZD/USD, down 0.2%, ahead of today’s Reserve Bank of New Zealand decision at 2.00pm NZST (12.00pm AEST).
We anticipate the RBNZ will reiterate that a tight policy stance is still required to bring inflation back within its target range of one to three percent, and to announce an unchanged cash rate of 5.50%.
Activity figures have been generally lackluster since the board’s last meeting on 10 April, and the unemployment rate (4.3%) has increased somewhat above forecasts. It will probably worry them, though, as local Q1 CPI inflation was more than expected and was driven mostly by higher non-tradables inflation.
Furthermore, the RBNZ has a high tolerance for macroeconomic weakness due to its exclusive emphasis on inflation, and the fact that US and Australian inflation figures have been somewhat better than anticipated.
Within its new quarterly statement, we anticipate only minor adjustments to its projections. Though a major change in that direction is not anticipated this week, we do anticipate a large dovish flip in time as inflation approaches goal.
Bank Indonesia unlikely to surprise again
All eyes will be on Bank Indonesia (BI) today after the central bank surprised everyone by hiking its policy rate by 25 basis points at the last meeting in reaction to the depreciation of the currency. This month, markets expect BI to keep rates on hold at 6.25%.
According to BI Governor Warjiyo’s most recent remarks, BI believes that the prior raise and other measures were beneficial and does not now see the need to pursue another hike.
The choice to remain put has been supported by IDR, which has similarly remained in a narrow range for the past several sessions. We do anticipate that the policy statement and remarks made at the press briefing will stay mostly aggressive, with BI probably maintaining a cautious stance given the ongoing high level of external uncertainty and restating its commitment to FX stability as well as its willingness to take preventive action when needed.
The trade surplus is still there, but there is still a chronic current account deficit that has to be closed due to ongoing primary income outflows.
Kiwi lower as RBNZ looms
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 20 – 24 May
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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