2019-11-11 • Updated
This week two major banks in the Asia-Pacific region deliver its rate statements. The Reserve bank of Australia held the press conference on Monday-Tuesday, while the press conference of the Reserve bank of New Zealand is scheduled for Wednesday at 23:00 MT time. We do not expect the rate hike, but should we expect the hawkish comments from the bank?
If we look at the charts, the Australian and New Zealand dollars or the antipodean currencies were trading against the US dollar at their lowest levels since the beginning of 2016. However, the central banks are seemed to do pretty well with the weak currency. Aren’t they?
The monetary policies of the two banks look very similar. Both the Reserve bank of Australia (RBA) and the Reserve bank of New Zealand (RBNZ) set their interest rates at record lows of 1.5% and 1.75% correspondently. But there are some differences which will help you to choose the best trading opportunities.
The Reserve bank of Australia keeps conducting its policy of low interest rates. The target inflation level for the next rate hike is held above 2%. For now, the Australian inflation has been a total disappointment for the investors with the actual data releases lower than the expectations. CPI for the September dropped to 1.9% in the 3rd quarter from 2.1% in the previous period. The reason for it lies in the falling prices for houses. As a result, the Reserve bank of Australia (RBA) suggested no changes to its current monetary policy. However, it also gave the forecasts for GDP growth: 3.25% in 2018 and 2019 and 3% in 2020. The forecasts for the inflation are 1.75% in 2018, 2% in 2019 and 2.25% in 2020. That makes the rate hike from the RBA possible during the upcoming year.
The main question is, why the current conditions of the economy do not motivate the RBA for the rate cut instead? According to the bank's Governor Philip Lowe, such a move will be destructive for the Australian economy. The rate cut would push the housing prices higher and increase the household debt. Lowe and the RBA hold on to the steady economic growth with falling levels of unemployment and increasing wages.
That is why the RBA is comfortable with the weak aussie, which has been struggling this year due to the trade war between the US and China and the Fed's policy of rate hikes.
However, the positive news on the trade negotiations between the US and Chinese presidents lifted the AUD. The Australian currency gained significantly against the USD this week, testing the resistance at 0.7286. The next resistance for AUD/USD lies at 0.7377. If the USD gains back its strength, it can pull the pair down. In that case, the first support is at 0.7168.
So how different is the policy of the Reserve bank of New Zealand from the Reserve bank of Australia?
The RBNZ, as well as the Australian central bank, set its interest rate at the lowest level of 1.75% in 2016 amid the weak growth in wages and unstable economic outlook. The bank anticipates the inflation of 1-3% as a target for future actions. However, the changing conditions of the economy make the bank uncertain about the future interest rate decision. The central bank of New Zealand even warned about the possibility of a rate cut when the GDP and CPI growth were slowing.
Recent releases showed a surprisingly upbeat economic data. The level of consumer inflation increased by 0.9%, as well as the employment change increased by 1.1%. The unemployment rate fell to 3.9%, beating the expectations. In addition, the economic growth jumped to 1% in the second quarter of 2018. Such impressive results put the RBNZ into the tricky position during the Wednesday's monetary policy meeting.
Some analysts suggest the possibility of the Australian scenario. They see the house and farm prices in New Zealand falling in the near future. The main reason for the rising house prices is connected with low mortgage rates, which makes it cheaper to borrow and makes other forms of saving unattractive. According to experts, if the RBNZ makes a rate hike, the house and farm prices will fall. That is why they suggest an uncertain tone of Wednesday's meeting.
For now, the New Zealand currency is trading at its July's highs, supported by the higher-than-expected employment releases and the weak USD after the mid-term elections. If the RBNZ makes hawkish comments, NZD/USD will stick above the resistance at 0.6793. In case of dovish comments, the pair can fall downwards to the support at 0.6719. Remember, that risk-off sentiment across the markets, as well as the uncertainties on the US-China trade war, are among the key factors affecting the currency.
To conclude with, it's important to notice that despite the banks are following a similar scenario, the differences in their policies still exist. We will anticipate the Reserve bank of New Zealand meeting to see how the bank will review its outlook on the economy and monetary policy.
Last Friday’s NFP was disappointing. The reaction of the markets was astonishing. Will it last longer? Let's find out the main trade opportunities for the upcoming week.
This week is full of important news, starting with PMIs in the key economies, with Jackson Hole Symposium as a cherry on the top.
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Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.
Bearish scenario: Sell below 1.0820 / 1.0841... Bullish scenario: Buy above 1.0827...
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