The Australian and New Zealand Dollars finished sharply lower last week as fear of additional rate cuts by their respective central banks chased weak longs out of the market, allowing the stronger short-sellers to regain control after a two-week reprieve. The icing on the cake for bearish traders was Friday’s news that Chinese officials were cutting short their visit to the U.S., dampening hope around trade negotiations between the two economic powerhouses.
Early in the week, the Aussie was capped by the minutes of the Reserve Bank of Australia (RBA) monetary policy meeting, which showed policymakers would consider further policy easing if needed to support growth and added that it was reasonable to expect an extended period of low interest rates to achieve employment and inflation goals.
Support began to erode at mid-week when the Australian Bureau of Statistics reported that the unemployment rate in August ticked up to 5.3% from 5.2%, where it had been parked for several months. The bearish element of the report was the 15,500 drop in the number of full-time workers.
The jobs data renewed calls for an RBA interest rate cut. With futures traders pricing in an 80% chance of a rate cut on October 1, up from 42% at the start of the week.
New Zealand Dollar
A report on New Zealand GDP came in as expected at mid-week, but it was weaker than the previous quarter, which means the Reserve Bank of New Zealand (RBNZ) is likely to cut its Official Cash Rate again before the end of the year.
After surprising traders with a 50 basis point rate cut in August, many traders thought the RBNZ would pass on a September 24 rate cut and trim on November 12 instead. However, this week’s price action indicates that traders aren’t taking any chances with another surprise and have already begun to price in a rate cut for this week.
Both the Aussie and the Kiwi are likely to start the week under pressure as investors continue to price in future rate cuts by the RBA and the RBNZ. Furthermore, there is early talk that the U.S. Federal Reserve is likely to pass on an October rate cut on October 30, but could cut again on December 11. This should help make the U.S. Dollar a more attractive investment.
We’re also looking at the possibility of renewed concerns over U.S.-China trade relations since higher-level negotiations are not going to resume until early October. A lot can happen between now and then.
The big event this week will be the RBNZ interest rate decision and policy statement on September 25. Economists believe policymakers will hold rates at 1.00%. However, since they have surprised as recently as August, speculative traders are betting on a rate cut. If they don’t cut then look for a short-covering rally.
In Australia, RBA Governor Philip Lowe will deliver a speech on September 24. Traders will be looking for any hints suggesting an October rate cut.
In the U.S. traders will get the opportunity to react to reports on Consumer Confidence, Final GDP, Core Durable Goods Orders and Personal Spending.
This article was originally posted on FX Empire
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