Weekly Market Update (31 May 2021) – Two central banks looking into interest rate hike in 2022.

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ByLCMS Traders FX Analysis Team

 MAY 28, 2021

(1) The Reserve Bank of New Zealand (RBNZ) held its monetary policy unchanged during their meeting last Wednesday, leaving interest rate at 0.25% and continue running its Large Scale Asset Purchase (LSAP) programme and Funding for Lending Programme (FLP) at current settings. However, the central bank has provided a forecast to its first interest rate hike after its unprecedented cut in March last year. With the good progress that New Zealand is making in containing the pandemic and the recovery in its economy, the RBNZ is now expecting interest rate to be at 0.50% in September 2022. The New Zealand dollar strengthened across the board as a result of this hawkish forecast.

(2) Last Thursday, Bank of England (BoE) committee member Vlieghe said in his speech that as the UK exits from its furlough programme in September, unemployment may rise above forecast. And as a result, the first interest rate hike may only be appropriate to be carried out next year. Thus, Vlieghe’s comment gave the market an insight into when the central bank may be looking to increase interest rate. This led to the strengthening of the British pound across the board.

(3) Australia has declared a one-week lockdown of its Victoria state starting from last Thursday. This decision came after a new cluster of infections in Melbourne was detected last week, leading to 26 new cases. Authority also highlighted that the country is currently dealing with a highly infectious strain of the virus.

(4) The Japanese government announced the extension of the current COVID-19 state of emergency in Tokyo, Osaka and seven other prefectures by three weeks last Friday. The country is hoping to slowdown the rate of infection before the start of the Olympics on 23 July.