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The Week Ahead in FX Markets – All about the Aussie Dollar

Published March 4, 2019

The New Zealand dollar opens comfortably within its 2019 trading range, beginning this week at 0.6803 on the interbank market against the greenback. The fact remains that importers have been doing well to take cover when the NZD moves towards 0.6900 cents, whilst exporters have been doing well towards 0.6700 cents.

The kiwi is off last week’s highs, however, mostly thanks to US dollar strength rather than NZ dollar weakness. This US dollar strength comes after the US posted solid GDP data last Thursday at 2.6% year on year. This was later followed by the Core PCE Price Index (which measures changes in Personal Consumption Expenditure) coming in at 1.9% – right on market expectations. These two results have sparked talk that the US Federal Reserve may need to revisit their recently dovish stance on interest rates.

The largest move over the weekend came from the NZDCAD. The NZD is up around 1% against the CAD after Canadian GDP came it at just 0.4% in the fourth quarter, down from 2.0% in the third quarter and far slower than the 1.2% expected by analysts.

This week market attention will be on the Aussie dollar, which has an array of economic and central bank releases to contend with.

The Aussie Dollar

In 2018, the AUD/USD traded in a wider range than the GBP/USD. In 2019 – the Aussie dollar is struggling to hold on above 0.70 cents against the greenback. This has allowed for the NZD/AUD exchange rate to rise to extraordinary levels, once again opening in the high 0.95’s.

The AUD has shown a lot of resilience in what has been a tumultuous 2019, with everything from flash crashes to coal import bans to contend with. This week ahead includes:

  • RBA Rate Cash Rate Decision – where Governor Lowe will no doubt keep rates on hold at 1.50% – but will he continue with hints of dovishness?
  • RBA Governor Lowe Speech, at the AFR’s 2019 Business Summit – where we may find out more on the RBA’s view
  • Australian GDP – expected to come in lower than last quarter, but still a reasonably strong 2.7%
  • Australian Retail Sales – expected to show modest growth of 0.3% month on month
  • Australian Trade Balance – which has recently ticked higher

The NZDAUD continues to enjoy stellar levels – trading well towards the top of long-term ranges. So is it justified? Perhaps this week we will find out – but it pays to consider economic fundamentals. Australia’s GDP is expected to come in this week at 2.7%, vs New Zealand’s 2.6%. Australia’s CPI is at 1.8%, vs New Zealand’s 1.9%. The list of economic releases go on like this – we are facing similar economic conditions – so it is hard to imagine the NZDAUD exchange rate staying at these levels for long.

The Week Ahead – Central Bank Releases

Outside of the RBA, both the Bank of Canada and the European Central Bank announce their decisions on interest rates. The Bank of Canada is inevitably going to keep rates on hold at 1.75%, after their weaker than expected GDP numbers last week. The European Central Bank will also be keeping rates on hold, but at record lows of 0.0%. Both events, however, carry some risk of a change in stance and are worth noting if you deal in CAD or EUR.

The Week Ahead – Key Economic Announcements

Locally, the key economic data to note will be Wednesday’s GDT Dairy Auction numbers. Elsewhere, attention will be on Friday’s US Nonfarm Payrolls number. Expectations are for 180k new jobs to be added for February, and the Unemployment Rate to drop to 3.9%.  

Key Themes – Brexit

The month of March brings with it the deadline for Britain to leave the EU. Prime Minister Theresa May has said that lawmakers would get to vote on a delay to Brexit if they chose not to approve her withdrawal agreement. This has eased overall market fears that Britain is in for a hard exit from EU where they would be forced to leave with no trade deal in place.

However, markets appear to have overlooked the fact that Britain alone cannot simply delay the exit – and that they need the agreement of the other EU member states for such an arrangement. There is a smaller portion of players (myself included), that does not believe the EU will simply agree to extend the deadline for further negotiations. The stakes have never been higher than they are this month. May has pledged a new vote on a trade deal will be held by March 12.

Chart of the Day – NZDAUD

The below chart shows the range for the NZDAUD exchange rate over the last 5-years. It is clear that the pair has a well-established trading range and that we are trading towards the top of this range. Click the image to enlarge.