Abstract:The NZDUSD and AUDUSD are tumbling to support as increasingly dovish RBNZ and RBA monetary policy bets are undermining their appeal, boosting the Japanese Yen as carry trades unwind.
AUDUSD, NZD/USD, RBA, RBNZ Talking Points
Australian and New Zealand Dollars sinking with dovish RBA, RBNZ bets
Anti-risk Japanese Yen is rising, likely due to an unwinding of carry trade
NZDUSD fall could extend, perhaps reaching 0.6425 after clearing support
Trade all the major global economic data live as it populates in the economic calendar and follow the live coverage for key events listed in theDailyFX Webinars. Wed love to have you along.
The pro-risk Australian and New Zealand Dollars are aiming lower in morning Friday trade as the anti-risk Japanese Yen gains. At first glance, this appears to be a case of general risk aversion, but stocks are aiming cautiously higher looking at APAC equities. Furthermore, S&P 500 futures are pointing to the upside heading into European and US trading hours.
NZD‘s decline with local front-end government bond yields was initiated by dismal New Zealand Manufacturing PMI below. Growth clocked in at a snail’s pace, just 50.2 in May versus 53.0 prior. That was the softest pace of expansion since December 2012 and follows a steady slowdown since the beginning of this year. This underscored action taken by the RBNZ to cut rates back in May as inflation slowed.
Hours later, both the AUD and NZD extended losses as the National Australia Bank (NAB) and Royal Bank of Canada in Sydney envisioned the RBA cutting rates further in the near-term. The former sees rates at 0.75% by November. The latter sees them at 0.5% by May 2020. Overnight index swaps are now pricing in a greater than 60% chance of a cut from the Reserve Bank of Australia next month.
Gains in the Japanese Yen might have had more to do with an unwinding of carry positions due to increasingly dovish shift in monetary policy expectations, rather than a selloff in stocks. In fact, earlier in the day, results in US government bond auctions indicated strong demand for haven assets as yields fell, perhaps amid rising fears of a recession. This is undermining the appeal of the relatively high-yielding AUD and NZD. Meanwhile, the US Dollar could benefit the most if a premium is placed on liquidity.
NZDUSD, AUDUSD, Australian Bond Yields 15-Minute Chart
Chart Created by Dimitri Zabelin
NZDUSD Technical Analysis
Taking a closer at NZDUSD, the pair has been resuming the dominant downtrend that took it from a peak of 0.6940 back in March, to lows set in May above 0.6482. If the appeal of the pro-risk AUD and NZD continues to deteriorate, Kiwi Dollar may be very well looking to not only breach current 2019 lows, but also then extend declines to eventually testing 0.6425.
NZDUSD Daily Chart
Chart Created in TradingView
Disclaimer:
The views in this article only represent the author's personal views, and do not constitute investment advice on this platform. This platform does not guarantee the accuracy, completeness and timeliness of the information in the article, and will not be liable for any loss caused by the use of or reliance on the information in the article.
The New Zealand central bank maintain its benchmark interest rate at 5.50% as expected during its previous meeting. While there was no surprise of the central bank paused rates, the less hawkish tone was a surprise as 23% of the market surveyed by Reuters predicted an interest rate hike. In February, the rate of consumer price growth in the United States picked up pace with the reading came in at 3.2%, surpassing expectations of 3.1% for underlying inflation.
New Zealand Dollar holds firm while risk-sensitive Australian Dollar falls overnight. RBNZ's inflation expectations survey in focus as the central bank’s rate decision nears. NZD/USD looks to retake the 0.7000 psychological level after bouncing from support
Australian Dollar is in focus with Chinese economic data on tap to kick off APAC trading. Japan’s Q3 GDP crossed the wires at -3.0% q/q, missing analysts’ expectations of -0.7%. AUD/USD looks to move higher after a Bullish Engulfing candlestick pattern forms
APAC traders look to close the week out on a bright note following Wall Street rebound. RBNZ rate hike bets continue to strengthen as economy recovers from Covid lockdowns. And, NZD/USD clings to 100-day Simple Moving Average (SMA) after overnight drop.