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Pairs to Range Trade

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AUDNZD Ranges Australia, New Zealand Look to Interest Rate Cuts

Mon, Sep 8 2008, 05:55 GMT
by Ilya Spivak

FXCM

Traders continue to ask themselves the question of whether it will be the RBA or the RBNZ that will more aggressively cut interest rates. For the foreseeable future all that is known is that both central banks will act similarly in loosening the cost of borrowing in order to check the weakening of their respective economies. AUDNZD will continue to favor a range-bound dynamic until traders have a better reading on who will cut faster, and by how much.

Trading Tip – This week’s RBNZ rate cut is expected to slash 25 basis points from benchmark borrowing costs. However, there have been calls for a 50bp reduction. As such, the announcement may see knee-jerk volatility should conservative expectations be upset. As a precaution, traders may want to wait for the release of the decision before setting their entry orders. In addition to a stop loss, we will look to control risk further by removing any unfilled orders by the end of the week or should spot close below 1.2155 prior to our order being filled.

Event Risk for Australia and New Zealand

Australia – This week presents traders with significant news releases starting off with Monday’s Retail Sales figure for July. For June the metric saw its largest decline in six years as tighter credit curbed consumer demand. July will probably see no improvements in the figure as the cost of borrowing was without ease throughout that month. Another decline following the already abysmal -1.0% printing seen for June will only further solidify the current outlook for the Australian economy and is unlikely to surprise the market. Consumer Inflation Expectations for September may see a downside revision from the 8.8% that was seen for August as the declining price of petrol is priced in. Labor data this week is expected to deteriorate as August’s Unemployment Rate probably ticked upward 0.1 percentage points to 4.4% after shrinking Retail Sales reduced the amount of cash that businesses use to employ labor. All in all, the dampening outlook for Australia will only further add pressure on the RBA to slash interest rates.

New Zealand – Wednesday will see the Reserve Bank of New Zealand cut rates for the second straight time by a quarter-point according to forecasts. Since a 25 basis point cut is already priced into the market only surprises in the magnitude of the decline are to move the Kiwi. Such a case is still a possibility as Royal Bank of Canada has even called for a 50bp reduction for Thursday.
After quarterly Retail Sales figures for the last period fell by the most in 13 years, July’s Retail Sales may see little relief as the declining South Pacific economy continues to affect the pocket books of those residing in it. Despite the important nature of the Retail Sales figure, all eyes will be on the RBNZ decision and whether or not increasingly aggressive actions are taken to side-step recession.

Published on  Mon, Sep 8 2008, 05:59 GMT