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AUD, NZD rise following possible turning points in monetary policy

Summary:

  • AUD leads the gains in the G10 as the RBA has tightened up its stance omitting a reference on weak inflation, strong data underpins AUD as well
  • NZ dollar follows its Australian counterpart in the wake of a possible turning point in RBNZ monetary policy
  • Asian session has been quite flat following little changes in the US except a decline seen in NASDAQ (US100)

The Australian dollar is definitely the best performer within the G10 group following a streak of strong macroeconomic data and a possible change in the RBA’s rhetoric. The ongoing upward move was sparked by a better than estimated retail sales as it came in at 0.5% mom in October against a forecast at 0.3% mom. On the other hand, when we break down the data one could notice that an increase was mainly driven by food sales suggesting that an overall rise in sales could have been caused rather by higher prices than more outlays of households.

link do file download linkDespite a rise seen in retail sales in October, an underlying trend remains weak exerting downward pressure on household expenditure. Source: Macrobond, XTB Research

Besides, there were two releases on Australian services PMI/AIG for November which beat the prior values producing 54 and 51.7 respectively. Chinese Caixin service PMI could have helped the AUD as well as it showed an improvement from 51.2 to 51.9 pushing the composite gauge from 51 to 51.6 in the past month. Last but not least it was the RBA meeting where rates were obviously held unchanged, however we got an adjustment in forward guidance as the Reserve Bank of Australia omitted a reference that "inflation is likely to remain low for some time". It could be a tipping point in Australian monetary policy, however the jury is still out to consider impending rate hikes. Otherwise, the RBA reiterated its view that the stronger currency could undermine economic growth and inflation while the outlook for household consumption is to be a source of uncertainty. The last remark seems to be in line with the chart we attached to this post suggesting that it’s decisively too early to think about a meaningful change in rates.

link do file download linkThe AUDUSD is breaking an upper limit of a channel following the strong data and a more hawkish stance of the RBA. If the current gains are retained, it could push the price toward 0.7755. Source: xStation5

While the Australian dollar is leading the gains in the morning, the NZ dollar is not far away being roughly 0.5% higher against the greenback. The reason for a rise comes from the RBNZ as governor Spencer said that it might be time for monetary policy to put more weight on output, employment and financial stability rather than inflation. Moreover, the central bank’s statement admitted that it assumes weak global inflation will persist going forward while the RBNZ is becoming more flexible in inflation targeting. Those are definitely hawkish remarks encouraging traders to buy the oversold NZD.

link do file download linkThe NZ dollar is on the rise against the USD, however a major obstacle remains in place. While a short-term trend line is broken, it could enable buyers to pursue their rally aiming for 0.7060. Source: xStation5

At last, the Asian session has brought a mixed picture as just the Hang Seng (CHNComp) is trading above the flat line while its main peers are trading slightly below the breakeven line. In turn, the US session ended with little changes except the NASDAQ (US100) as it lost over 1% following a sell-off in tech stocks such as Align Technology.

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