By Roger J Kerr
Some of the pre-conditions for the NZD/USD exchange rate to fall below 0.8000 are now being fulfilled; that is, weaker Euro to $1.2800 and a lower CRB Commodities Index to 292.
However, the main driver of the Kiwi dollar direction, the Aussie dollar, has yet to come back from its recent surge.
The USD itself it looking stronger on the world stage with the USD currency Index now up above 80 again.
If the RBA fail to cut their OCR interest rate tomorrow afternoon, the AUD will have further reason not to fall.
Consensus predictions from Aussie market economists are 70% in favour of another 0.25% interest rate cut, whereas the moneymarkets are pricing the chances at 50/50.
Arguments for another cut by the RBA are that just one cut in isolation (last month’s move) does nothing for the economy.
Arguments against a cut centre on Chinese economic data improving of late and thus the Aussie economy does not need any further stimulus.
Perhaps import/export trade and retail sales data due for release today will tip the balance for the RBA. Weaker numbers supporting a cut. The mandarins at the Australian central bank seem to take some pride in surprising the markets and announcing a 0.25% cut half an hour before the running of the Melbourne Cup on Tuesday afternoon would be the sort a party-pooping event they would be attracted to.
If the Australians do ease monetary policy further this week they would be following the global trend as the US and Japan have both loosened and the Europeans should follow later this week as well.
The European Central Bank has an interest rate review on Friday 9 November and can be expected to cut their official rate to 0.50% from the current 0.75%.
The AUD/USD exchange rate has historically displayed a strong correlation to JPY/USD currency movements, and we are now finally seeing the Yen weaken in response to the recent Bank of Japan loosening of monetary policy.
While China may now dominate Australian economic fortunes, Japan is still very important for Australian export industries. Further Yen weakening towards 82 against the USD over coming weeks should see the AUD being pressured down against its key $1.0200 support level.
A clear break below $1.0200 for the AUD/USD rate would see the Kiwi dollar also breaking below key support levels and testing 0.8000.
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* Roger J Kerr is a partner at PwC. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com
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3 Comments
well I could tell you, but then I'd have to kill you :-)
Actually it's not decided until the end of the meeting tomorrow so actually I know as much as you do. I don't have a property here and the endless speculation and obession with the rate announcement every month starts to wear thin after a while, so I can wait and see.
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