AUD/NZD hits fresh lows since April, advances lower from 1.0500

• AUD/NZD looks set to close convincingly below the 105.00 mark for the first time since mid-April.
• Out of favour AUD has been one of the worst G10 FX performers on the day, while in favour NZD has held up well.
• This week’s Kiwi data calendar is light, while the Aussie calendar is packed, particularly on Tuesday.

AUD/NZD has slumped from above 1.0500 during Monday’s Asia session to current levels around 1.0470, taking the pair to its lowest levels since 13 April 2020. At present, the pair trades with losses on the day of just under 40 pips or slightly less than 0.4%.

China tensions hurt Aussie as focus shifts to RBA, data

Bickering between Australia and China at the start of the week has undermined what ought to have been a bullish AUD reaction to Monday’s solid official November Chinese PMI data. The continued stronger than anticipated performance of Australia’s most important export market China has been overshadowed in recent weeks by worsening diplomatic and trade relations; ships with over A$1B in Australian coal exports have been stuck on Chinese shores for weeks and China has implemented high tariffs on Australian wine, barley and even barred imports of Australian meat from a large number of Aussie abattoirs.

Most recently, tensions have frayed over a fake picture posted on a Chinese government Twitter account that depicted an Australian soldier murdering an Afghan child, something Australia has demanded China apologise for posting.

Looking ahead, domestic events will increasingly drive AUD sentiment, with a number of key releases coming up during Tuesday’s Asia session. Just minutes ago, the Australian AIG Manufacturing Index was released showing a drop in November to 52.1 from 56.3, AUD has not reacted to the disappointing print.

Next up, Australian Markit Manufacturing PMI is set for release at 22:00GMT and is expected to show a rise to 56. Then at 00:30GMT on Tuesday, October Building Approvals and Q3 Current Account will be released. The reaction to the upcoming data is likely to be muted as AUD traders keep their powder dry ahead of Tuesday’s RBA rate decision; fireworks are not expected at this meeting, with rates seen unchanged at 0.1% and QE parameters expected to be left unchanged. However, the tone of the statement, particularly with regards to any hints as to policy in 2021, will be closely scrutinised and AUD could, as ever, be choppy.

Kiwi remains buoyant

Meanwhile, unlike AUD, NZD has not been weighed on by either central bank action (indeed, news of the New Zealand government floating the idea of including house price inflation into the RBNZ’s inflation remit actually boosted NZD) or tensions with China.

Meanwhile, the kiwi has been able to benefit from a drastic improvement in broader financial market risk appetite (many major equities indices posting their best months in decades or even ever), which has been driven by vaccine hopes and US President-elect Joe Biden’s recent election victory. Not that New Zealand actually even needs a vaccine right now; the country has proven to be one of the best in the world in containing the pandemic, another factor keeping NZD supported.

Global themes such as those mentioned above look set to continue to dominate NZD flows in the week ahead, amid a lack of any more pertinent New Zealand domestic economic events. Solid Chinese PMI data and New Zealand ANZ business survey released during Monday’s Asia session have helped the kiwi off to a decent start. Whether the current pace of NZD/USD appreciation can continue at the present rate is another question; analysts note that NZD long-positioning is become overstretched and that the RBNZ, who have shown a strong aversion to NZD strength in the past, might be keen to jawbone the currency lower.

AUD/NZD key levels