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AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Minutes More Dovish than Expected; Further Rates in Play

The minutes show that the RBA was ready to consider further policy easing as needed to support growth and inflation targets, while it was reasonable to expect an extended period of low interest rates.
James Hyerczyk
AUD/USD and NZD/USD

The Australian and New Zealand Dollars are under pressure early Tuesday following the release of dovish Reserve Bank of Australia (RBA) meeting minutes and a weaker-than-expected consumer sentiment report from New Zealand. The news is helping to support further rate cuts by their respective central banks before the end of the year.

At 05:28 GMT, the AUD/USD is trading .6835, down 0.0030 or -0.45% and the NZD/USD is at .6330, down 0.0018 or -0.28%.

RBA Minutes More Dovish Than Expected

In Australia, the minutes from the Reserve Bank of Australia’s September monetary policy meeting indicate that the prospect of lower interest rates remains “hot”, meaning policymakers can cut rates at any upcoming meeting.

The minutes show that the RBA was ready to consider further policy easing as needed to support growth and inflation targets, while it was reasonable to expect an extended period of low interest rates. This news wasn’t particularly earth-shattering, but based on the price action in the AUD/USD, it was enough to curb the enthusiasm of optimistic traders, hoping for further upside activity.

The minutes also revealed that local industry had unexpectedly flourished despite the escalation of the U.S.-China trade war in August, but upward wage pressure appeared to be stalling. Policymakers also added, a gradual lift in wages would be a welcome development.

Central bank policymakers also painted a gloomy picture over U.S.-China trade relations, but this outlook may change at the next meeting due to the positive developments over trade during the past two weeks.

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Westpac –RBA Minutes Support Case for October Rate Cut

According to Bill Evans, an analyst at Westpac, the RBA minutes of the September Board meeting indicate that policymakers are moving closer to another rate cut.

“The minutes make a fairly clear case for another rate cut in 2019.”

“With two meeting now having passed since the last move and, from my perspective, most importantly, the key rate cut theme that “the Australian economy could sustain lower rates of unemployment and underemployment” returning to the narrative, out central view that there is no reason to wait until November for the next move still seems reasonable.”

“November is typically favored by the RBA since it is a time when it can refresh its forecasts although we are not expecting any significant changes along the lines of August when the forecast unemployment rate was lifted; the forecast pace of wages growth was lowered; and the timing of the return of inflation to the 2-3% band was pushed out by a year. The growth forecast in 2019 is likely to be lowered by the 2020 forecast should remain intact.”

“However, as the minutes warn, “developments in the international and domestic economies, including the labor market” will be assessed to see whether a further easing of policy is “needed”.”

“Westpac continues to predict cuts in the cash rate of 25 basis points in both October and February next year.”

Daily Forecast

The dovish tone in today’s RBA minutes is likely to keep the pressure on the AUD/USD. Our work indicates the selling may not stop over the near-term until a test of at least .6791 to .6767.

The NZD/USD has met and exceeded the downside target at .6357 to .6336. Trader reaction to this area will determine whether there will be another short-covering rally, or a retest of its multi-year low at .6269.

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