Unwinding Aussie?
In recent months the Australian and New Zealand Dollars have both been able to recover ground against a weakening US Dollar. Set backs to the progress made amongst the Antipodean currencies has largely been down to changes in global growth expectations. With the soft landing narrative still just about alive thanks to the Fed’s and PBoC’s recent measures, it is no surprise that USDNZD and USDAUD trade near their year to date lows.
Stimulus measures in China have captivated the majority of financial headlines this week. Such measures should prove positive for AUD in particular adding to the case for these currency pairs to test current support levels. However, yesterday’s inflation reading could throw a spanner in the works for regional Australasian FX. Core and nominal inflation levels recorded softer than many had expected yesterday with the year on year inflation rate to August 2024 coming in at just 2.7%.
Close watchers of the RBA will be swift to note this level is within the central bank’s target range. Rate cuts have been priced in for early next year at the RBA given that Australia observed a lower terminal rate of interest than much of the developed world. However, a swift return to target inflation rates could push the RBA into action sooner than expected. Pricing for the RBA’s meeting in early December shows a rising probability of a cut. With markets still fixated on interest rate differentials, these statistics could make the case to limit further downside projections within USDAUD and by association at least USDNZD.
Discussion and Analysis by Charles Porter
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