Potential for whippy AUD this week
The scene for the NZ dollar will be set offshore this week. It is the RBNZ’s turn next week.
Remarkably the Australian economy will report a 17-year run of growth this week (last recession ended mid 1991). That’s an exceptional performance and its generally expected to continue for another 12 months and more. Which makes the AUD fall over August all the more notable. Sure, some of the AUD/USD fall reflected USD strength but cross rates like the AUD/EUR and AUD/CAD are now below their averages of the last 10 years. There appears to be plenty of expectation built in of slower Australian growth ahead and near-term RBA rate cuts. This creates the potential for a sharp AUD rebound in the next few weeks.
The extent of the rate cuts due will become clearer Tuesday. The RBA are very likely to reduce the cash rate by 0.25% but will also have to hint at another imminent 0.25% rate cut to satisfy market anticipations. As always the future is unknown but the bigger reaction is likely to come if the RBA disappoint. An AUD rebound would push the NZD/AUD lower and drag the NZD higher against other currencies.
Meanwhile the USD has stalled, albeit rates still moving through wide ranges. The volatility implies it is still worthwhile placing sell orders for the NZD around 1-2% above current levels.
