Sterling stalls as markets expect a rate cut by the RBNZ tonight – 22nd July 2015

Sterling would have ended up at the bottom of the pile yesterday had it not managed to end the day up by a dozen ticks against the US Dollar. Everywhere else it was down by an average of 0.6% with it’s biggest decline against the Norwegian Krone. It also lost a cent-and-a-half to the Euro as the single currency, rebounded from a two-month low against the US Dollar.

Sterling’s decline once again highlighted the unpredictability of the currency markets as UK public sector borrowing numbers were respectable. At £8.6bn in June, borrowing was the lowest for that month since 2008 owing to higher corporation and income tax revenues.

This morning the markets seemed unsure how to react to a combination of Australia’s consumer price index and a speech by the RBA Governor. Quarterly and annual inflation in Australia was a touch lower than expected so investors decided that, on average, inflation was low enough not to present an obstacle if the RBA decided to make another cut to interest rates and the Aussie Dollar fell.

The Aussie Dollar then recovered as Governor Stevens began his speech. He was guardedly upbeat about the prospects for Australia’s economy and expressed caution about “over-reacting” to short-term circumstances by taking rates too low. But he did confirm that a cut is still “on the table” which saw the Aussie Dollar fall again. A real see-saw few hours.

Today’s highlights for Sterling will be the MPC minutes and the CBI’s retail sales measure for July. Tonight, analysts are almost unanimous in their expectation that the Reserve Bank of New Zealand will lower its Official Cash Rate from 3.25% to 3%.

The Monetary Policy Committee minutes for July might well be the last to show a 9-0 majority in favour of keeping the Bank Rate at 0.5%. That notion could help sterling if the CBI’s Distributive Trades Survey looks punchy enough. It is hard to find anyone who does not expect a quarter-percentage-point cut from the RBNZ this evening. Anything bigger would hurt the Kiwi.