AUD/NZD bears stay in control, although downside momentum stalling

AUD/NZD is consolidating between a low of 1.0321 and 1.0334 as the bear trend's momentum slows up following a steep decline for the start of the year so far. First up, it has been a dramatic twenty-four-hours in global financial and commodity markets. Iran’s elite Revolutionary Guards launched its first retaliatory strike for the assassination of Qassem Soleimani in the dead of night with a barrage of ballistic missiles targeting US forces in neighbouring Iraq.

However, there were signs emerging from Tehran that the move was a calculated response to President Donald Trump’s decision to kill Soleimani, and as such, markets took a pause on the risk-off and considered that there may not be retaliation from the US, considering there had been no reports of US casualties, hence seeing this as some sort of revenge without actually provoking out-right war. 

President Donald Trump then addressed the US the next day when he was able to say that Iran “appeared to be standing down”. Rather than announce any additional military action, he said he was imposing fresh sanctions on Iran. Risk rallied again, supporting both the kiwi and aussie. Note, the cross initially made a five-month low at 1.0316 following Iran’s retaliation, but rebounded to 1.0348 following Trump’s address.

Attention back to central banks

 Market attention has turned to unconventional monetary policy tools, in particular, quantitative easing. However, Analysts at ANZ Bank explained, that they don’t expect the RBA to turn to QE in 2020. "After a couple more rate cuts to 0.25% and explicit forward guidance, we think it will wait before considering further steps, provided no shock occurs that prompts immediate action.""Markets are pricing a 50% chance of easing at the Feb RBA meeting, and a terminal rate of 0.41% (RBA cash rate currently at 0.75%). Market pricing for RBNZ implies only a 15% chance of easing in February, with a terminal rate of 0.87% (RBNZ OCR currently at 1.0%," analysts at Westpac noted.

Data for the pair will come in the form of Australia’s November month trade numbers will likely see the Trade Balance surplus improve from 4502M to 5915M. We also have the Consumer Price Index (CPI) which is expected to rise to 4.7% from 4.5% YoY.

AUD/NZD levels