RBNZ & Aussie jobs preview

<p>The upcoming RBNZ decision (due at 20:00 GMT) should be expected to leave rates unchanged, but beware of any new signs of dovishness in the […]</p>

The upcoming RBNZ decision (due at 20:00 GMT) should be expected to leave rates unchanged, but beware of any new signs of dovishness in the statement aimed at guiding the kiwi lower. The other event of the evening is Australia’s jobs report (due at 00:30 GMT). Both the Aussie and NZD have been punished hard against the USD, but AUDNZD has recovered substantial ground since last week.

Ahead of the RBNZ

Today’s RBNZ decision is widely expected to hold rates unchanged at 3.50% due to an overheated housing market , robust consumer confidence and prices pressures that are far from the rest of the world’s disinflation-bound. The last RBNZ announcement of Jan 28 triggered sharp losses in NZD as the central bank formally shifted towards a neutral stance from a hawkish disposition.

A stark reminder to kiwi traders is that any inevitable remarks from RBNZ governor Wheeler indicating that kiwi remains overvalued may lead to short-lived selloffs before a swift snapback because after all, the currency yields the highest interest rate among top traded currencies.

It would take a shoft in stance (which already happened), or a stark change in language, such as mentioning the possibility of reducing rates.

There are two ways for Wheeler to effectively drive down the currency:

i)             Offer more detail on the RBNZ’s efforts to implement macroprudential measures towards the property market. Since NZ’s overheating property sector stands as the main obstacle to a rate cut, any means to cool it off may imply the door is open for easing ahead in order to weaken the currency.
ii)            Aside from downward revisions in GDP growth and CPI, RBNZ could remove the phrase “Future interest-rate adjustments, either up or down, will depend on the emerging flow of economic data”, replacing it with the sentence that the RBNZ expects rates “on hold for some time”.

The other drag on the NZD is the threats to Fonterra over contamination of baby formula from ecological groups protesting the govt’s use of pesticide in controlling wild animals. It is not certain whether Wheeler will address this topic. A neutral RBNZ would likely support NZD anew, but not against AUDNZD, which could further test the 1.0570 trendline.

Aussie jobs report

Aussie jobs in February are expected to have added 15K after a net decline of 12K, with the unemployment seen unchanged at 6.4%. The breakdown between full-time and part-time jobs will also be crucial in commanding market reaction. The January breakdown was -28K FT and +16K PT.

Last night, RBA assistant governor Kent said confirmed the door remained open for further policy easing, while he understood the negative effects on savers. One comment, which was AUD-positive was Kent’s acknowledgment that the declining Aussie was starting to help the economy adjust, but uncertainties about the outlook do remain as unemployment has yet to reach its peak.

AUDUSD remain well within its September 2014 downward channel, which held over the past 2 weeks’ bounces. With our expectations that China sees no real recovery in sight, the RBA will not only keep the option for further rate cuts, but also talk down the Aussie—especially in the event of any dovish surprise from the Fed. In order for the 6-month channel to hold, AUDUSD recoveries will remain capped at 0.7780s.



Build your confidence risk free
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.