- Sprites lifted as word of the preliminary trade Sino/US trade deal was mostly done.
- Week ahead is a jam-packed of risk events, including Aussie CPI and Chinese PMIs
AUD/NZD has run into a brick wall just below the 1.08 handle and a downside case is building. AUD/NZD is currently trading at 1.0770 at the time of writing and struggles in attempts to the 1.08 handle.
In a quiet start to the week, there has not been a great deal out there to serve as a catalyst for the pair, although the positive tones emanating from President Trump with respect to a Chinese/US trade deal has underlined the commodity complex as well as global equities. There have also been some encouraging comments from Beijing that the technical work for a preliminary deal was mostly done also cheered Wall Street.
Individually, the AUD/USD performed well, recovering from 0.6815 late Sydney trade to 0.6845 in NY while the NZD/USD ranged between 0.6334 (a two-week low) and 0.6360 – The AUD/NZD cross subsequently climbed 0.3% overnight, to 1.0775. As for yields, the Australian 3-year government bond yields climbed from 0.73% to 0.77% while the 10-year yield inched from 1.09% to 1.15%. “Markets are pricing 4bp of easing at the 5 Nov RBA meeting, and a terminal rate of 0.49% (RBA cash rate currently at 0.75%). Market pricing for RBNZ is for 22 basis points of easing on 13 November, with a terminal rate of 0.61%,” analysts at Westpac explained.
A busy week ahead
The week ahead is a jam-packed of risk events, including the Federal Open Markey Committee and US Nonfarm Payrolls, as well as Chinse PMIs, but domestically, Australian Q3 Consumer Price Index will be critical. “We forecast headline inflation to edge up 0.6% q/q (prior 0.4%) on alcohol, food & tobacco, with fuel providing some offset. This takes annual headline CPI to 1.8% from 1.6%. Underlying inflation is expected to remain a touch below 0.4% q/q, keeping core inflation ~1.5% y/y. However this outcome is unlikely to trigger the RBA to cut next month,” analysts at TD Securities argued.
Meanwhile, for the day ahead, Reserve Bank of Australia Governor Lowe speaks in Canberra from 5:45pm local time. However, “With the RBA Board meeting only a week away, he may not be inclined to deliver a strong message on near term policy,” analysts at Westpac argued.
AUD/NZD levels
The cross has dropped in recent trade and looks ugly on the hourly time frame with bars testing the bull’s commitments at the 21-hour moving average. On the daily outlook, the pair looks to be struggling much beyond the 1.0770s as price develops a top, leaving a bearish wick just below the 1.08 handle. The 50-day moving average has offered support earlier this month but should it give way at 1.0660, bears will be in the running for a test to 1.0630 guarding the mid 1.05s and prior constructive support in August.
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