RBA and RBNZ to remain in focus this week – BBH
Analysts at BBH suggest that this week the Reserve Bank of Australia and the Reserve Bank of New Zealand hold policy meetings and soft inflation and retail sales in Australia keep the RBA on hold.
“The central bank continues to expect the overtime, continued above-trend growth and the strong labor market will boost inflation and buffer aggregate demand. Many market participants are less convinced. Speculators in the futures market have been paring long Aussie exposure for five consecutive weeks through October 31. The Australian dollar has fallen 5% since early September and has already given up about 50% of this year's gains.”
“The New Zealand dollar has also lost about 5% over the past two months. The main drag is political, not economic. Investors are worried about the new Labour-New Zealand First government. There are two immediate concerns. First is the declared effort to give the central bank a "dual mandate" like the Fed where full-employment is given its due alongside price stability. Second, some government policies will be aimed to discourage foreign purchases of New Zealand homes. However, the macroeconomic situation seems constructive. Inflation is near 2% in Q3 (1.9%), and the labor market remains strong. While it may be a bit early to suggest an RBNZ hike, pressures may still mount on the RBA to cut rates.”
“The New Zealand dollar was the strongest currency among high income countries last week with a 0.4% advance. It had fallen nearly 10% in the three months from late July. Last week's upticks fizzled out in front of the minimum retracement of the last leg down that began on October 17. The Kiwi finished poorly ahead of the weekend, but additional losses into the $0.6950-$0.6970 area may offer a low-risk entry opportunity.”