Sunday, 12 May 2013

About that interest rate cut...

Easing interest rates is THE central bank game in town according to FT Alphaville:
...other big Asian currency war battlers, Australia and New Zealand.
The RBA cut its rates on Tuesday, citing the room afforded by new inflationary data, plus some stronger words on the exchange rate. The next day, New Zealand’s central bank declared it was intervening in its own too-strong currency. Both have their own problems with high asset prices: Australia’s central bank might sound less worried about this just now as growth has slowed, but it’s not ignoring the risk. In New Zealand, house prices are such a worry that the central bank is tightening rules on risk-weighting of mortgages and loan-to-valuation ratios.(here).
Bloomberg picked up on the inherent paradox of apparently increasing jobs undermining the RBA's (and RBNZ's) rate cuts:

Australian industry has been squeezed by the currency’s longest stretch above parity with theU.S. dollar since it was freely floated in 1983 that has made tourism more expensive and exposed local manufacturers to cheaper imports. Rosella, a 117-year-old saucemaker, announced its closure at the start of March, leaving 70 workers without a job. General Motors Co.’s Holden division said last month it will cut about 500 jobs in Australia, citing currency devaluations in competing markets.(here)
and the job figures could apparently be prone to errors:
Australia’s jobs data has swung from gains to losses in the past three months. April’s 50,100 rise was preceded by the loss of 31,100 jobs in March and the addition of 71,700 in February.
“The last couple of months has seen a higher than usual amount of sampling volatility,” said Andrew Salter, a Sydney-based foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. “The market has certainly priced out some RBA easing but I don’t think there’s going to be a view change on the basis of one month’s data. Certainly the trend in the unemployment rate, still being higher, is consistent with the RBA’s outlook.” 

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