- AUD/NZD consolidated below the 1.05 handle and awaits Chinese data.
- AUD/NZD firm on RBNZ dovishness expected to cut again.
AUD/NZD spiked on yesterdays surprise 50 basis point interest cut by the Reserve Bank of New Zealand as the market had only expected a 25 basis point cut upon a neutral statement with a slightly more dovish press conference – Instead, it was majorly dovish all around.
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RBNZ Governor Orr: “… we will have to lower the interest rate further”
AUD/NZD has shown little signs of a pullback at this stage with a slightly, yet very cautious, improved risk tone overnight following USD/CNY repeat fixing below 7 and possibilities of trade talks taking place in September. AUD/NZD preserved yesterday’s gains and was up about 1.3% to 1.0490.
The risk from here is further escalation of trade tensions, the possibility of comments from either side removing all prospects of such a meeting taking place resulting in major risk-off again from which the Aussie will likely to take most of the brunt of such an episode considering its closer ties to trade-related headlines and the Chinese economy.
Looking ahead
Meanwhile, it is a race to the bottom that the RBNZ is winning, getting ahead of the Reserve Bank of Australia that decided to hold off from cutting rates this last meeting around. We will now wait to see what comes of this week’s noise from the RBA for further clues as to when they might cut interest rates, for the market is pricing in at least two rate cuts before the year is out.
Meanwhile, the market looks ahead to today’s trade data from China and tomorrow’s Consumer Price Index. “China’s July trade report is expected to show a pullback in the surplus from June’s hefty $51bn, to around $43bn. Exports are seen down about -1%yr in US$ terms, imports -9%yr but as always there is plenty of scope for surprise in this volatile survey,” analysts at Westpac explained.
AUD/NZD levels
A pullback to the 38.2% Fibo around 1.0430 meets the 20-day moving average and the end of June/start of July double bottom swing lows where the price rallied to the pair’s first key upside target that meets the 127.2% Fibo extensions of the RBNZ fuelled rally around 1.0540.
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