Week In Review: ECB And RBNZ Rate Cuts

It was a week of Central Bank decisions with the Bank of Canada, RBNZ and the ECB being the main events of the week which saw two rate cuts and a neutral stance. The Bank of Canada decided to leave interest rates unchanged for this month’s meeting at 0.50%, opting instead to wait for the fiscal stimulus measures from the government which is to be presented later this month. The Canadian dollar enjoyed its strong rally with the neutral BoC stance alongside a rally in Oil prices. USD/CAD posted strong declines for the seventh week in a row since January this year. Prices fell to a 15-week low, but Friday’s jobs data disappointed as the Canadian unemployment rate edged higher to 7.30% from 7.20%, while the employment change saw a decline of -2.3k against expectations of 10.2k.

The Reserve Bank of New Zealand was the surprise this week as the Central Bank cut rates by 25bps to bring the New Zealand overnight lending rates to 2.25%. The rate cut surprised the markets as many economists expected the RBNZ to hold back from rate cuts at this meeting. Citing a stronger exchange rate in relation to the fall in commodity prices, the RBNZ came down strongly on the Kiwi. NZD/USD slipped on the data falling -1.33% after the RBNZ’s rate cut but managed to recover in the next days.

The European Central Bank was the big event this week and Mario Draghi delivered, this time, going a bit beyond what the markets expected. Cutting rates across the board, the ECB’s minimum bid rate is now zero bound while the deposit rates were cut further to -0.40%. The ECB also expanded its QE purchases by another 20 billion which will now include corporate bonds as well. While the Euro fell on the news, the press conference saw Mario Draghi hinting that the ECB would not look at further easing in the near term. This led the Euro to strongly reverse and closed the day with 1.70% gains as the single currency rallied back to trade comfortably above the $1.10 handle.

Other developments this week included the weekly jobless claims rising 259k below the estimates of 272k but it did not help the Dollar much. In fact for most of this week, the US Dollar took a back seat with the Euro flows defining price action.