Australian Dollar eases from July 9 high vs New Zealand Dollar; awaits Aussie GDP and RBNZ

AUD/NZD scales higher for the fourth straight day, though it lacks follow-through buying.
The reaction to China’s PMIs was muted ahead of this week’s key data/central bank event.
Australia’s Q2 GDP report and the crucial RBNZ rate decision are due on Wednesday.

Haresh Menghani FXStreet

The AUD/NZD cross turns positive for the fourth straight day following an intraday fall to the 1.2065 area and climbs to a fresh high since July 9 during the Asian session on Monday. Spot prices, however, struggle to build on the momentum and currently trade just above the 1.2100 mark as traders seem hesitant ahead of this week's key data and the central bank event risk.

Australia's June-quarter Gross Domestic Product (GDP) report is scheduled for release on Wednesday and will be immediately followed by the Reserve Bank of New Zealand's (RBNZ) monetary policy decision. In the meantime, the NZIER Monetary Policy Shadow Board result suggested that the RBNZ will increase the OCR by 25 basis points (bps) in September. Moreover, traders expect the central bank to signal a further hike by the year-end, which is seen as acting as a tailwind for the New Zealand Dollar (NZD) and capping the AUD/NZD pair.

The Australian Dollar (AUD), on the other hand, continues to draw support from the Reserve Bank of Australia's (RBA) hawkish outlook. In fact, RBA Governor Michele Bullock emphasized during her press conference that a rate cut is not on the agenda and that additional tightening remains "quite possible" if inflation fails to cool as projected. The view was echoed in minutes from the August RBA meeting, released last Tuesday, which, along with China's better-than-expected PMIs, offers some support to the China-proxy Aussie and the AUD/NZD cross.

China’s National Bureau of Statistics (NBS) reported Manufacturing PMI rose to 49.8 in August, compared to 49.2 in the previous reading and above consensus estimates for a reading of 49.7. Additionally, the NBS Non-Manufacturing PMI held steady at 49.0 during the reported month. The gauges, however, remain below the 50 line separating growth from contraction, which holds back AUD bulls from placing aggressive bets and keeps a lid on the AUD/NZD cross. This warrants caution before positioning for an extension of a one-week-old uptrend.

(This story was corrected on August 31 at 03:03 to change the asset name to AUD/NZD instead of AUD/USD in the first bullet point.)

Economic Indicator

Gross Domestic Product (QoQ)

The Gross Domestic Product (GDP), released by the Australian Bureau of Statistics on a quarterly basis, is a measure of the total value of all goods and services produced in Australia during a given period. The GDP is considered as the main measure of Australian economic activity. The QoQ reading compares economic activity in the reference quarter to the previous quarter. Generally, a rise in this indicator is bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.

Why it matters to traders?

The Australian Bureau of Statistics (ABS) releases the Gross Domestic Product (GDP) on a quarterly basis. It is published about 65 days after the quarter ends. The indicator is closely watched, as it paints an important picture for the economy. A strong labor market, rising wages and rising private capital expenditure data are critical for the country’s improved economic performance, which in turn impacts the Reserve Bank of Australia’s (RBA) monetary policy decision and the Australian dollar. Actual figures beating estimates is considered AUD bullish, as it could prompt the RBA to tighten its monetary policy.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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