Weekly Market Recap

Weekly Market Recap: RBNZ Hikes Rates While RBA Stays on Hold

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It was a heavy trading week as major central banks met and OPEC applied changes to its output. The RBNZ took another step to reduce monetary stimulus, while hinting at similar moves ahead to keep inflation and the labor market under control. On the other hand, its Australian counterpart decided to stand pat for another month keeping rates unchanged and maintaining asset purchases at a lower pace. Meanwhile, oil prices jumped to new high as OPEC heads to increase production. 

RBNZ Hikes Rates for the First Time in 7 Years

The Reserve Bank of New Zealand raised its official cash rate by 25 basis points to 0.50% during its October meeting matching market expectations. The decision marked the first rate hike since June 2014. Members stated that the decision was appropriate to maintain low inflation and support maximum employment. 

The central bank mentioned its awareness of elevated uncertainty affected by COVID-19 and related restrictions which have badly affected some businesses and a range of service industries. These restrictions are expected to have longer-term implications for economic activity both domestically and internationally. But noted that New Zealand’s public health is evolving as vaccination rates increase, and recent economic indicators support confidence that the economy will recover quickly. 

The 25 bp rate hike signals the start of a policy tightening cycle that was expected to begin in August. But the move was delayed by the recent outbreak of the Delta variant and the lockdown in Auckland, the biggest city in New Zealand. 

According to the updated inflation outlook, headline inflation is expected to rise above 4% in the near term before returning to 2% over the medium term. The near-term rise in inflation is expected due to higher oil prices, rising transport costs, and the impact of supply shortfalls.

Policymakers added that further removal of monetary stimulus is expected over time, but future moves are conditioned on the medium-term outlook for inflation and employment. 

RBA Keeps Rates and Bond Purchases Unchanged

The Reserve Bank of Australia held interest rates at a record low of 0.10% during its October meeting, as widely expected. Meanwhile, the bank will continue the purchases of government bonds at a trimmed pace of A$4 billion a week until at least mid-February 2022, as declared in the last meeting. Policymakers stated that the timing and pace of the economic rebound in Australia are uncertain and will depend much on the easing of restrictions. 

The policy statement reflected the board’s confidence in the economic conditions, expecting the economy to resume its rebound cycle in December. And despite the fact that the recent lockdowns hit the labor market, it is expected to bounce back as the economy reopens in October and November. 

“The setback to the economic expansion in Australia is expected to be only temporary.”, “In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year.”- RBA Monetary Policy Statement stated.  

The central bank reaffirmed its commitment to keep the supportive monetary conditions and won’t raise rates until inflation sustainably stabilizes within the 2-3% target range, a condition that will not be met before 2024.

NFP Numbers Disappoint

The US economy added only 194K jobs in September, the lowest so far this year and far below market forecasts of nearly 500K. Despite the notibale gains in job creation since the pandemic hit, employment is still down by 5.0 million from its pre-pandemic levels.

Meanwhile, unemployment rate fell to 4.8% better than expectations at 5.1%. Average hourly earnings rose 0.4% monthly and 4.6% annually.

OPEC Boost Oil Output 

Weekly Market Recap - OPEC

OPEC+ decided to stick to a gradual supply hike by 400K bpd in November, according to the deal reached in July. The oil production organization said that the decision was based on current oil markets fundamentals and the consensus on its outlook. WTI rose to a seven-year high of $79.78 a barrel earlier in the week, while Brent oil climbed over $82 per barrel for the first time since 2018. Both are trading with weekly gains of more than 5%. Oil prices have more than doubled since last year. 

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