Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD mostly weaker in Presidents Day trade
FX markets were mostly quiet overnight with US equity and bond markets closed for the Presidents Day holiday.
The US dollar remained weaker, with the USD index down 3.0% since 3 February, and trading at the lowest level since 12 December.
The Australian and NZ dollars have gained well so far in February with both the AUD/USD and NZD/USD at two-month highs ahead of upcoming key central bank decisions.
In Asia, the USD gained, with the USD/SGD climbing from two-month lows, while USD/CNH was lifted from one-month lows.
AUD/USD at December highs ahead of likely RBA cut
The Reserve Bank of Australia decision, due at 2.30pm AEDT, will be the first major trans-Tasman central bank decision this week.
We anticipate the RBA will start a cycle of gradual easing with a 25-basis point cut, bringing the cash rate down to 4.10%.
We do expect that the board will report more rapid than anticipated progress in bringing inflation back to the goal and express increased confidence in the long-term, sustainable movement of inflation into the 2-3% target range.
But because the fight against inflation is still ongoing and the labour market is still somewhat tight, we anticipate that any further relaxation will be strongly conditioned on more inflation-related developments.
Overall, we believe this will be seen as a hawkish rate cut, with the central bank more cautious towards cutting further, because it might give the highest weight to quarterly CPI inflation statistics, we believe the next live meeting will take place in May instead of April.
The AUD/USD remains in a short-term uptrend with an initial objective to 0.6420; however, the Aussie is vulnerable to losses if the RBA appears willing to cut rates more aggressively.
Kiwi at two-month highs with another jumbo cut forecast
Tomorrow, the RBNZ rate decision will be made public. We anticipate a third 50bp rate cut by the RBNZ, bringing the cash rate down to 3.75%.
Activity data has been conflicting; business surveys indicate that confidence has improved, but Q3 GDP was very poor, indicating that the economy has relapsed into recession.
We believe there is a compelling case to quickly restore monetary settings to at least neutral given the considerable spare capacity, strict fiscal policy, and inflation close to goal.
The NZD/USD is also in a short-term uptrend, with initial targets to 0.5812.
A break below 0.5512, however, sets up a return to a more negative outlook for the NZD/USD.
All eyes on RBA, RBNZ
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 17 – 22 February
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
