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James Hyerczyk

The Australian and New Zealand Dollars finished mixed on Friday with the Aussie edging lower and the Kiwi inching higher. Both markets posted inside moves which suggest investor indecision and impending volatility.

Australian Dollar traders appeared to be taking a breather after a steep sell-off the previous session. That move was fueled by worries over a potential rate cut by the Reserve Bank of Australia (RBA) or the announcement of aggressive bond buying at its early November policy meeting.

New Zealand Dollar traders were likely squaring positions ahead of the week-end elections although the latest polls didn’t seem to be indicating concerns over possible surprises. Like the Aussie traders, Kiwi traders are primarily focused on the direction of interest rates with the Reserve Bank of New Zealand (RBNZ) floating around the idea of negative interest rates for early 2021.

On Friday, the AUD/USD settled at .7077, down 0.0018 or -0.28% and the NZD/USD finished at .6605, up 0.0008 or +0.12%.

No Follow-Through to Downside after Aussie Hits One-Week Low

Although the AUD/USD finished lower on Friday, there was no follow-through to the downside following the previous session’s steep sell-off. That move was fueled after the head of the central bank hinted of a possible rate cut or bond purchases.

Governor Philip Lowe in a speech in Sydney said the RBA is assessing whether buying longer-dated bonds would help the economy and considering an interest rate cut. This marks a major change in policy because the RBA currently intervenes to keep the three-year yield at 0.25% but doesn’t control yields further out the curve.


Risk Off Tone, Stimulus Uncertainty, Virus Concerns Support Dollar, Weigh on Aussie, Kiwi

The U.S. Dollar edged higher against the Australian and New Zealand Dollars on Friday on increased caution over a global surge in coronavirus cases and fading prospects for a U.S. stimulus package before the November 3 election.

The Aussie and Kiwi were headed for another steep drop on Friday, but an unexpectedly strong 1.9% rise in retail sales last month suggested the economy was carrying more momentum into the fourth quarter than anticipated, defying fears that the expiration of enhanced unemployment benefits in the summer would harm the economy. This news helped lift some of the pressure off the U.S. Dollar.

Short-Term Outlook

With Aussie traders adjusting their long positions ahead of the widely expected rate cut from 0.25% to 0.10% at the November meeting, and Kiwi investors still getting used to the idea of negative rates, at a minimum, we’re looking at gains in both currencies being capped over the near-term.

If there is pressure on the AUD/USD and NZD/USD then it’s going to come from the stronger U.S. Dollar. The greenback’s strength will be fueled by a weaker stock market or other signs of lower demand for riskier or higher yielding assets.

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

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