RBA stay the course - next up NZ jobs: AUDUSD and NZDUSD

As widely expected, at its monthly board meeting this afternoon, the RBA kept monetary policy on hold, including its targets of 10 basis points for the cash rate and the yield on the April 2024 Australian Government bond.


As widely expected, at its monthly board meeting this afternoon, the RBA kept monetary policy on hold, including its targets of 10 basis points for the cash rate and the yield on the April 2024 Australian Government bond.

The RBA's forward guidance remained dovish as it reiterated that the conditions needed to raise interest rates (inflation sustainably between the 2 to 3% target rate and wages growth of 3%) are unlikely to be met until 2024 at the earliest.

After announcing a tapering of its latest QE program at its July Board meeting, and despite a surge in new Covid cases currently impacting the economy, the RBA plans on staying the course.

It will continue to purchase government securities at the rate of $5B a week until early September and then taper to $4B a week until mid-November. Caught off guard by this, the AUDUSD jumped 30 pips after the announcement from .7370 into resistance .7400/20.

Attention for traders of the Antipodean currency pairs now turns to tomorrow morning's labour force data in NZ.

Before reviewing expectations for the jobs data, we note this morning the RBNZ proposed to tighten mortgage lending standards by restricting high LVR owner-occupier lending to 10% of all new loans effective 1 October, and it may introduce debt-to-income restrictions and interest rates floors.

As directed by the NZ Government, the RBNZ now explicitly targets housing prices, up over 30% in the past 12 months. Should the RBNZ's proposals be implemented, it would suggest the need for a less hawkish RBNZ rate hike path.

Returning to tomorrow jobs data, the expectation is for the unemployment rate to fall to 4.5% from 4.7% and the participation rate to increase to 70.6%. The tightening labour market pushing wages growth 0.6% higher in the quarter.

The NZDUSD has been encapsulated in a 0.6880-0.7050 type range for the past three weeks, supported on the downside by expectations of a 25 bp rate hike at the August 18th RBNZ meeting.

A rally above .7050 and then above the 200-day moving average currently at .7100 would indicate that the NZDUSD has completed a correction from the February .7465 high at the recent .6881 low and that the uptrend has resumed.

Aware that should the NZDUSD break and close below support at .6900/.6880, it would warn that a deeper correction is underway, towards .6700c/.6500c.


Source Tradingview. The figures stated areas of the 3rd of August 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Build your confidence risk free

More from FX

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.