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James Hyerczyk

The Australian and New Zealand Dollars are trading higher on Monday, mostly on profit-taking and short-covering, following last week’s steep sell-offs. The Kiwi is posting the biggest gain as investors prepare for Tuesday’s quarterly Inflation Expectations report and Wednesday’s Reserve Bank of New Zealand (RBNZ) interest rate and policy decisions. Also on Wednesday, Australia will release the Wage Price Index, followed by Thursday’s Employment Change and Unemployment Rate reports.

At 10:56 GMT, the AUD/USD is trading .6861, up 0.0002 or +0.03% and the NZD/USD is at .6365, up 0.0038 or +0.59%.

Australian Dollar

Last week, the AUD/USD tumbled mostly in response to comments from the Reserve Bank (RBA). Domestic economic data was mixed. Retail Sales came in soft, but Housing Finance Approvals were higher in September, consistent with the recovery in established house prices in recent months.

The RBA left rates on hold as expected, though it maintained an easing bias. In the RBA’s Quarterly Statement on Monetary Policy (SoMP), policymakers indicated that wage and price inflation is likely to remain very subdued for at least the next two years. However, it also said it sees the economy picking up some strength over the coming year, largely reflecting hopes for a lift in consumer spending due to a lift in income and higher house prices.

Traders still see another rate cut coming in February, perhaps.


New Zealand Dollar

The U.S. bank holiday and little concerns over U.S.-China trade relations could be behind the price increase on Monday. The U.S. Treasury markets are closed so rates aren’t rising like they did last week, putting a little pressure on the U.S. Dollar.

The RBNZ’s monetary policy committee will meet on Wednesday to decide what to do with the official cash rate.

According to a Bloomberg survey, 15 out of 21 economists are predicting the bank will cut the OCR to 0.75 percent from 1 percent while the other six are expecting no change.

The market had priced in about a 65 percent chance of a cut early Monday morning and that has ebbed to just above 60 percent now.

Daily Forecast

We could see a friendly tone throughout the session. Because of the U.S. bank holiday, there is nothing to stop a short-covering rally. The selling pressure could resume on Tuesday when U.S. traders return and the Treasury market reopens.

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