Asia Session: Australia and New Zealand momentarily steal the limelight in Asia
Headlines announcements today were limited to Australia and New Zealand, putting the spotlight on the aussie and the kiwi. The world’s biggest commodity currencies, however, stopped short of breaking significant levels of support/resistance against USD. With so much focus on Europe, the US and China, it is not surprising the domestic data flows from Australia and New Zealand failed to move their respective currency in a huge way.
NZ CPI data at its lowest level since 1999
However, the kiwi dropped around 30 pips against USD immediately following weak consumer price data out of New Zealand (actual 0.3% m/m, exp 0.5%), stopping just short of breaking a support level at around 0.8125. The unexpectedly weak inflation data reinforces the view the RBNZ will have to take a more active role in support of domestic growth. Recently the RBNZ has been content to sit on the sidelines, but the impact of external threats on the economy cannot be ignored. And, it is not just inflation that has taken a hit, PMI, retail and confidence data have also taken a hit. Hence, it may just be only a matter of time before the RBNZ is forced to act by cutting rates by 25 bps.
What is the RBA going to do?
In Australia, the release of the RBA minutes went pretty much as the market was expecting. The RBA was dovish but not hysterically so, the board is clearly aware of the threats to domestic growth stemming from Europe and China, whilst also admitting it’s not just mining exposed sectors of the economy that are struggling. The minutes reveal the board is looking at housing and construction particularly closely as they are looking weak or, in the case of the housing sector, vulnerable.
In terms of monetary policy, the bank notes that it is too early to fully assess the impact of the previous rate cuts. Overall, the minutes are, in typical RBA fashion, fairly ambiguous.
They don’t rule out another rate cut, but at the same time there isn’t the urgency we would expect to see if the bank was in the midst of a massive easing cycle. Hence, the question has to be raised; is the 150 bps that has been lobbed off the official cash rate since this time last year enough? Does the RBA want to keep some ammunition in reserve in case the threats to domestic growth don’t start to dissipate?
Looking at market pricing, it is clear investors are gunning for another 25 bps cut in November. When we consider the slowdown in China and the delicate game the PBoC has to play as it balances inflation concerns with growth, it is not hard to be a little bearish.
This puts even more attention on Thursday’s GDP data out of china, if that was even possible. However, as was previously stated the minutes don’t expresses the urgency we would expect to see from a reserve bank that is overly worried. Thus, it may be another close call come November.
Ones to watch: AUDUSD
Once again, the aussie is stuck in tight range against the US dollar. The outward bounds of the current range sit just below 1.0150 and 1.0300 (please see chart below). A break in any direction would represent a big move for the pair and create the potential for more bearish or bullish price action depending on the direction of the break.
On the upside, the pair may be in a short-term correction as part of a longer-term downward trend. Nonetheless, this doesn’t rule out a retracement to around 1.0330 (38.2% retracement level and 200day SMA) or even 1.0385 (50% retracement level). Yet, this all assumes the pair can push through a mass of orders around 1.0300, which is may prove difficult in thin market conditions.
AUDUSD – daily