Early Morning Call: NZD/USD rises after record RBNZ rate hike

Equity market overview

In the US, the three main indices ended the session higher, with the Dow Jones coming closer to mid-August resistance.

In APAC, indices ended mostly higher. Singapore STI lost ground after gross domestic product (GDP) rose by 4.1% in the third quarter (Q3) in its final estimate, down from 4.4%, and below expectations of 4.3%. It is also expected that GDP will rise between 0.5% and 2.5% in 2023.

Still in Singapore, consumer price index (CPI) rose by 5.1% in October year-on-year (YoY), lower than the 5.3% expected.

The Reserve Bank of New Zealand (RBNZ) increased its official cash rate by 75 basis points (bp) to 4.25%, its biggest interest rate hike, which means rates are now at their highest level since January 2009. "The OCR needs to reach a higher level, and sooner than previously indicated, to ensure inflation returns to within its target range over the medium term," the RBNZ said in a statement.

The RBNZ also increased the projected peak for the cash rate to 5.5% in September 2023 where it expects it to remain into 2024. The RBNZ has remained more hawkish than its neighbour Australia, which has slowed its rate increases. At its last two meetings on 5 October and 2 November, the Reserve Bank of Australia (RBA) increased interest rates by 25 bp, after four consecutive 50bp hikes. This morning's ninth straight hike means the cash rate has now risen 400 basis points since October 2021.

The RBNZ also projects the New Zealand economy will start contracting in the second quarter (Q2) of 2023 and continue declining until the first quarter of 2024. RBNZ governor, Adrian Orr, told a press conference that, in order to rid the country of inflation, spending levels need to be reduced, which will translate in a period of negative GDP growth.

The Dollar Basket has been drifting lower recently, and traders don't expect the greenback to find support at tonight's Federal Open Market Committee (FOMC) minutes. The Federal Reserve (Fed) acknowledged in its statement that it had already raised rates significantly and that, in order to see the effects on inflation, it could slow down the pace of raising rates.

The market now anticipates a 50 bp hike is in December, after four consecutive 75 bp increases.

Elsewhere on the equity market, United Utilities reported a fall in revenue and earnings in the first half (H1), while Halfords and Britvic posted an increase for both top and bottom line.

In the US, HP delivered a mixed quarterly report. Earnings per share (EPS) was in line with expectations at 85 cents. Revenue was broadly in line, down 11% to $14.8 billion, but the PC maker signalled that current challenges are likely to continue into 2023.

HP forecast a lower-than-expected profit for the first quarter, between 70 and 80 cents, lower than the 86 cents forecast by analysts. It also expects softness in both consumer and commercial demand. PC sales have shrunk from the heights hit during the pandemic as households and businesses reduce spending in the face of decades-high inflation.

HP has also decided to part with up to 123% of its workforce. The group employs nearly 50,000 people, and said it expects to reduce headcount between 4,000 and 6,000 by the end of 2025.

Commodities

Yesterday evening, API inventories showed a drop in crude oil stocks of 4.8 million barrels.

Gasoline inventories fell by 400,000 barrels, while distillate stocks increased by 1.1 million barrels.