AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Expected to Keep Rates on Hold; Some Talking Suprise

The early price action suggests traders are expecting a dovish tone to the statement, but are not looking for a rate cut this month. Ahead of the decision, futures market traders are pricing in about a 12% chance of a rate cut.
James Hyerczyk

The Australian and New Zealand Dollars are trading lower shortly before the release of a report on Australian Retail Sales at 01:45 GMT and the Reserve Bank of Australia’s interest rate decision and Rate Statement at 04:30 GMT.

The early price action suggests traders are expecting a dovish tone to the statement, but are not looking for a rate cut this month. Ahead of the decision, futures market traders are pricing in about a 12% chance of a rate cut.

At 01:15 GMT, the AUD/USD is trading .6703, down 0.0014 or -0.20% and the NZD/USD is at .6290, down 0.0018 or -0.29%.

Australian Retail Sales Report

The Australian Retail Sales report is expected to show a 0.2% monthly gain. Traders will be watching this report to see if recent measures – such as income tax cuts and interest rate cuts – are driving up consumption.

RBA Rate Decision and Rate Statement

“The RBA indicated in August that it was in assessment mode and would wait until an ‘accumulation of additional evidence’, Tapas Strickland, director of economics and markets at the National Australia Bank wrote in a Tuesday morning note. “Recent data suggests the economy remains soft with little sign of retail picking up on the back of tax cuts, though we expect the RBA to wait until next month’s data before deciding in case spending was shifted between quarters.”

“The RBA is expected to be on hold with 30 out of 34 economists tipping an unchanged decision at 04:30 GMT and markets only pricing a 12 percent chance of a rate cut,” Strickland said.

“We expect the post-meeting statement to read dovishly and could more explicitly signal a rate cut at an upcoming meeting given softness in GDP partials, a sharper decline in housing construction than forecast, and little sign that households choose to spend their recent tax cut,” added Strickland.

Michael McCarthy at CMC Markets in Sydney said, “Expectations for an interest rate cut in Australia today are muted after the back-to-back cuts in June and July. However, the inventory component of the national accounts shocked with a 0.9% drop in the second quarter. This has some analysts predicting a negative number when GDP data is released tomorrow, a development that could shift the RBA’s thinking. However the stimulatory impact of the lower Aussie should be enough to stay the board’s hand today.”

ANZ Bank said, “While the RBA is expected to hold although there is still the possibility of a surprise considering the lingering concerns about economic growth amid rising trade tensions and should there be one, the Aussie would be set to spike hard to the downside and remain under pressure considering the escalations of trade wars, protests in Hong Kong, Chinese and global sluggish growth. Moreover, looking across the macroscope from which the Aussie is correlated to, weak economic data weighed on the base metals sector, with copper and aluminum falling.

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