AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Cuts Benchmark, RBNZ Likely to Follow in NovemberThe RBA rate cut is bearish because some analysts were looking for the central bank to pass on this rate cut and make the move in November. The early move now leaves the door open to further rate cuts in November or December although the market is pricing in the next rate cut for early 2020.
Australian and New Zealand Dollars are under pressure on Tuesday in the wake of another rate cut by the Reserve Bank of Australia (RBA) and in reaction to another bearish New Zealand business survey, which opens the door even further for a Reserve Bank of New Zealand (RBNZ) rate cut in November.
The AUD/USD whip-sawed shortly after the release of the RBA’s rate cut decision before turning sharply lower for the session. The RBA cut its official interest rate to a record low of 0.75 percent today. The decision was somewhat of a surprise since the move was forecast by only 55 percent of economists surveyed. Many had argued for a “hold” with another cut coming in November.
When announcing the rate cut, the RBA board also said it was prepared to go even lower if the nation’s economy does not respond.
In his statement on Tuesday, RBA Governor Philip Lowe said the board decided to cut again in an attempt to eat into persistent labor market slack amid signs employment growth is likely to slow from its recent fast rate.
Dr. Lowe also said the board took account of the forces leading to the trend to lower interest rates globally and the effects this trend is having on the Australian economy and subdued inflation,” he said.
“Interest rates are very low around the world and further monetary easing is widely expected, as central banks respond to the persistent downside risks to the global economy and subdued inflation,” he said.
Dr. Lowe also said the RBA would consider cutting rates to 0.5 percent in order to support sustainable growth, full employment and the achievement of the inflation target over time.
New Zealand Dollar
The NZD/USD fell in sympathy with the AUD/USD after the RBA rate cut, but most of the earlier pressure was generated by another bearish business sentiment survey.
The New Zealand Dollar fell to a four-year low early Tuesday after the New Zealand Institute for Economic Research (NZIER) released the results of its Quarterly Survey of Business Opinion (QSBO) on Tuesday. The new data showed there was a net 35 percent drop in business confidence in the September quarter.
The research firm also said the “result suggests annual Gross Domestic Product (GDP) growth will ease below 1 percent later this year. Manufacturing sector remains the most pessimistic, continued weakening in both domestic and export demand, continued uncertainty over the trade war between the US and China.”
The RBA rate cut is bearish because some analysts were looking for the central bank to pass on this rate cut and make the move in November. The early move now leaves the door open to further rate cuts in November or December although the market is pricing in the next rate cut for early 2020.
Traders are also saying that the RBA and RBNZ may have to take a look at quantitative easing as their next move if the rate cuts don’t start revitalizing the economy. Both central banks would also welcome fiscal stimulus from their respective governments.
In the U.S. on Tuesday, traders will get the opportunity to react to a slew of economic reports and speeches from Fed members. However, I don’t expect the greenback to be rattled at all with most traders focused on Friday’s U.S. Non-Farm Payrolls report.
The biggest reaction by the greenback is likely to be generated by the outcome of the ISM Manufacturing PMI report. It is expected to come in at 50.4, up from 49.1. Another reading under 50 could weaken the U.S. Dollar since it may encourage the Fed to reconsider an October rate cut.