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James Hyerczyk

The Australian and New Zealand Dollars are edging higher early Wednesday as buyers return to the currencies in response to a slight increase in demand for riskier assets. Gains are likely being capped, however, on concerns over Australia’s relationship with China, worries about the COVID-19 pandemic after a couple of vaccine trials were put on pause on Tuesday, and the lack of progress toward a U.S. stimulus package.

At 04:34 GMT, the AUD/USD is trading .7172, up 0.0011 or +0.16% and the NZD/USD is at .6665, up 0.0015 or +0.23%.

Australia October Consumer Sentiment Surges to Two-Year High in “Extraordinary” Result

A measure of Australian consumer sentiment soared in October to the highest since July 2018 in a sign of confidence in the country’s fiscal and monetary authorities for their handling of the coronavirus pandemic.

The Westpac-Melbourne Institute Index of Consumer Sentiment released on Wednesday jumped 11.9% in October from September, when it climbed 18%.

The index is now 13.2% above its level a year ago at 105.0 meaning optimists outnumbered pessimists. It is the first ‘optimistic’ reading since June 2019.

This is an extraordinary result,” Westpac Chief Economist Bill Evans said.

“Such a development must be attributable to the response to the October Federal Budget; ongoing success across the nation in containing the COVID-19 outbreak; and the expectation that the Reserve Bank Board is likely to further cut interest rates at its next meeting on November 3.”

Earlier this month, Treasurer Josh Frydenberg announced a larger-than-expected fiscal stimulus package as part of the federal government’s plan to boost jobs and growth while the country’s central bank pledged to do more to support the economy, Reuters said.


RBNZ Not Bluffing on Prospect of Negative Rates, Hawkesby Says

New Zealand’s central bank is not bluffing when it says it may resort to negative interest rates, Assistant Governor Christian Hawkesby said.

“It’s not a game of bluff,” Hawkesby told a Citigroup conference in Sydney via video link on Wednesday. He was responding to a suggestion that the Reserve Bank is only using the threat of negative rates to exert downward pressure on the kiwi dollar and has no intention of actually using them.

The RBNZ has said it may cut its cash rate into negative territory early next year to stoke inflation as the coronavirus pandemic drives up unemployment. Its counterpart in Australia has been far more circumspect on the use of negative rates, saying it is “extraordinarily unlikely” to use them, Bloomberg reported.

Daily Forecast

The early price action suggests that risk appetite will guide the price action today as traders showed little reaction to Australia’s consumer confidence report and comments from an RBNZ official on the possibility of negative interest rates early next year.

Aussie and Kiwi traders are likely to be guided by the direction of the U.S. Dollar which is starting to attract demand ahead of the U.S. election and in reaction to a resurgence in COVID-19 cases in the U.S., the lack of progress toward a vaccine and another stalemate over U.S. fiscal stimulus.

For a look at all of today’s economic events, check out our economic calendar.

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