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The New Zealand dollar spiked higher after a report showed United States inflation was slowing, taking pressure off the Federal Reserve to hike interest rates at its meeting next month.
The US dollar index, which measures the greenback against a basket of currencies, dipped 0.6% after data overnight on Wednesday showed the US consumer price index (CPI) rose at a 4.9% annual pace in April, slower than the 5% expected.
That increased the lure of the New Zealand dollar, which spiked to US63.85 cents from US63.24c.
“There has been a break higher in the kiwi following the US CPI,” said ASB senior economist Mark Smith. “The fear was inflation would hold up for longer.”
Markets were now expecting the Federal Reserve to pause in June, marking the first time it hasn’t raised rates at a meeting in more than a year, with “pretty aggressive” rate cuts of 100 basis points now priced in through to early next year, he said.
In New Zealand, markets have fully priced in a 25bp hike to the Reserve Bank’s official cash rate this month, which would take the benchmark interest rate to 5.5%.
Following the US inflation report, traders on Thursday extended their bets for Reserve Bank interest rate cuts through to the end of next year to 165bp from 160bp on Wednesday.
“Markets are probably sharpening their pencils for rate cuts,” Smith said. “They’re very much saying look we’re very close to the peak in rates and then it’s cuts. If markets aren’t hiking, they’re cutting – they don’t do stability very well.”
Traders will now be looking ahead to the Reserve Bank’s survey of inflation expectations scheduled for release on Friday.
“The view is that those inflation expectations will come down, but possibly not enough to stop the RBNZ from hiking 25 basis points,” Smith said.
Reserve Bank of New Zealand
The path back to low inflation – Reserve Bank of New Zealand chief economist Paul Conway
The benchmark S&P/NZX 50 Index slipped 0.8%, or 99.539 points, to 11,887.76 on Thursday. On the broader market 44 stocks rose and 82 fell with $110 million shares traded.
Retirement village stocks fell after the Commerce Commission said on Wednesday that it was launching an investigation into potential breaches of the Fair Trading Act by retirement villages.
The probe comes after a series of complaints, including from Consumer NZ and village residents, about what they claim are unfair contract clauses which can leave retirees significantly out of pocket.
A commission spokesperson confirmed it had received complaints relating to the industry and was beginning an investigation into whether there were any potential issues under the act.
Ryman Healthcare fell 0.9% to $9.32, Summerset Group slipped 1.1% to $8.15, and Oceania Healthcare slid 1.5% to 68c. Arvida Group bucked the trend, closing up 1% to $1.04.
KMD Brands, which owns the Kathmandu, Rip Curl and Oboz Footwear brands, fell 1.8% to $1.08. The company announced Megan Welch had been appointed as chief executive of Kathmandu, taking over from managing director Michael Daly, who has been caretaking the role.
Daly said Welch had extensive global brand and product experience and would join Kathmandu from Crocs where she served as senior vice president and general manager Asia Pacific in Singapore.
“Megan’s multi-channel expertise across retail, wholesale and digital, make her the ideal leader for Kathmandu as we continue to grow the business and expand our global presence,” Daly said.
She will take up the position in August.
Steel & Tube dropped 1.9% to $1.03, extending its decline this week to 2.8%. On Wednesday the company published a trading update showing revenues were up, but margins were down, and forecast sales volumes in the second half of its financial year would be down between 10% to 15%.
The company forecast full-year 2023 normalised earnings before interest and tax of $28m to $32m compared to $47.6m in its last full financial year.
In a report on Thursday, Forsyth Barr analysts said the guidance implied a significant slowdown in second-half earnings, driven by both lower volumes and gross margin pressure.
“While a solid infrastructure pipeline should underpin long-term demand, the current operating environment is patchy and will likely remain so over early FY24,” the analysts said.
“The positive in the trading update is continued reduction in inventory and net debt.”
Forsyth Barr made significant reductions in its near-term forecasts, largely due to lower volumes, and lowered its 12-month target price for the stock by 17% to $1.16.
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