New Zealand Eases Policy

The Reserve Bank of New Zealand took markets by surprise overnight after cutting the benchmark interest rate from 3.50% to 3.25%. This marks the first interest rate cut since 2011 when the Central Bank cut from 3.00% to 2.50% before hiking again in 2014. However, in the subsequent statement, RBNZ Governor Graeme Wheeler cited the weakness in dairy prices and rising fuel prices as the reason behind the latest policy shift. Taking into account these factors coupled with slowing growth in Australia and China, the RBNZ thinks that further interest rate cuts might also prove appropriate depending on how the situation unfolds and how inflation responds to the latest modification of monetary policy. To the South, Australian unemployment managed to show surprising gains overnight, with the rate falling to 6.00% from 6.10% in the prior period. The AUDNZD pair has soared on the data, rising over 300 pips in the last twelve hours.

The Department of Energy data reported yesterday showed that crude oil production in the United States continued to expand, reaching a record 9.61 million barrels per day. While inventories may have collapsed the most in 11-months, dropping by 6.81 million barrels, the kneejerk reaction in prices was to the downside before rebounding to the upside late in the session yesterday. Nevertheless, risks remain acutely skewed to the downside with some predicting that OPEC will continue raising production to punish shale producers and protect market-share that has been generally eroded by surging US production. Even though producers raised substantial capital in the first quarter as prices tumbled, trying to catch the falling knife in valuations, they might have bought too soon as the Saudis pump at a record pace, hitting 10.33 million barrels per day in May. Brent prices broke out of the downward channel, possibly paving the way towards further gains.