(27 MARCH 2019)DAILY MARKET BRIEF 1:RBNZ tone adds to Fed speculation

A quiet Asian session as equity markets staged a mild recovery ahead of Brexit uncertainty. The increased probability of a soft or no Brexit has encouraged investors. However, this one will clearly go down to the wire. The GBP trade still is asymmetrical with upside from an EU relationship likely resulting in strong GBP buying. Earlier, the Reserve Bank of New Zealand held the official cash rate at 1.75 as was widely anticipated. However, the meeting took a dovish turn as the committee stated that the "more likely direction" for rates would be lower. This shift in tone has increased the risk easing of monetary policy.

According to market IOS pricing a cut at the May meeting is unlikely (but not impossible) the August meeting is clearly in play. The NZD reacted sharply to the dovish twist falling over 1%. In general, the news that the RBNZ was contemplating benchmark rate cut would be isolated to Asian markets. However, as speculation that the Fed next move will be to cut rates, the widening circle of dovish central bank only solidifies the theory. US treasury yields fell marginally while the greenback gained against g10 currencies.