News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
GBP/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • USD/MXN drops back into its recent range as investors await further guidance from economic data. Get your weekly Mexican Peso forecast from @HathornSabin here: https://t.co/reMgPrFGdF https://t.co/dl6gomcFxF
  • Slippage can be a common occurrence in forex trading but is often misunderstood. Understanding how forex slippage occurs can enable a trader to minimize negative slippage, while potentially maximizing positive slippage. Learn about FX slippage here: https://t.co/Blrl0uF2Ct https://t.co/KS13JNwlvL
  • What is your forex trading style? Take the quiz and find out: https://t.co/YY3ePTpzSI https://t.co/bxQ8s8eGjR
  • Australian Dollar plunged for a fifth week but held key downtrend support at the yearly lows. Get your weekly AUD technical forecast from @MBForex here: https://t.co/uyUWYQoYS7 https://t.co/BXid10FYD1
  • Greed is a natural human emotion that affects individuals to varying degrees. Unfortunately, when viewed in the context of trading, greed has proven to be a hindrance more often than it has assisted traders. Learn how to control greed in trading here: https://t.co/kODPAfJE79 https://t.co/eReyYRYOn1
  • Last week’s march higher in EUR/USD may well extend further after Friday’s Eurozone economic statistics that will likely turn the ECB more hawkish on monetary policy. Get your weekly Euro forecast from @MartinSEssex here: https://t.co/EWrJy5LfOF https://t.co/NQj5xCdw9b
  • The Consumer Price Index, better known by the acronym CPI, is an important economic indicator released on a regular basis by major economies to give a timely glimpse into current growth and inflation levels. Learn how to better understand CPI here: https://t.co/nAa0fHHGbZ https://t.co/uDeIMr1Ks4
  • A currency carry trade involves borrowing a low-yielding currency in order to buy a higher yielding currency in an attempt to profit from the interest rate differential. Find out if the carry trade suits your trading style here: https://t.co/7t4BzmLg8w https://t.co/srqRhfdKUd
  • Cable is pulling off after a strong run; near-term weakness may be the theme before trying to rally again. Get your weekly GBP technical forecast from @PaulRobinsonFX here: https://t.co/030gXzxlEc https://t.co/ux7W6OcBOm
  • Japanese candlesticks are a popular charting technique used by many traders, and the shooting star candle is no exception. Learn about the shooting star candlestick and how to trade it here: https://t.co/mfwJ0sZLTs https://t.co/FPKAoLQuuI
AUD/USD, NZD/USD Outlook Looks Past Stocks to Rate Cut Bets

AUD/USD, NZD/USD Outlook Looks Past Stocks to Rate Cut Bets

Daniel Dubrovsky, Strategist

AUD/USD, NZD/USD, RBA, RBNZ, S&P 500, Emerging Markets – Talking Points

Australian Dollar, New Zealand Dollar Diverge with S&P 500, Emerging Markets

The “pro-risk” Australian Dollar and similarly-behaving New Zealand Dollar have generally been struggling to capitalize on aggressive gains in overall market sentiment as of late. Since the beginning of January, the S&P 500 and MSCI Emerging Markets Index (EEM) are up about 2.7% and 2.5% respectively. These gains partly reflected optimism into the US-China “phase one” trade deal signed on January 15.

On the chart below, I have overlaid S&P 500 futures and the EEM with a majors-based AUD and NZD index. The latter two are composed of an average of their performance against the most-liquid forex majors. These include the US Dollar, Euro, Japanese Yen and British Pound. Since the end of 2019, both the NZD and AUD have generally been weakening despite a clear improvement in market mood. What gives?

AUD, NZD, S&P 500 and Emerging Markets

AUD/USD, NZD/USD Outlook Looks Past Stocks to Rate Cut Bets

Chart Created in TradingView

RBA and RBNZ Rate Cut Bets Have Been on the Rise

Their lackluster performance could be traced down to what typically matters the most for driving currencies, their expected rate of return. Coinciding with declines in AUD/USD and NZD/USD have been weakening regional government bond yields (see chart below). The Australian 2-year yield is down over 15% since the beginning of 2020. This is as the New Zealand 2-year yield declined over 9%.

At the end of 2019, cash rate futures were pricing in about a 38.3% chance of a 25-bp rate cut from the Reserve Bank of Australia (RBA) in February. This has since increased to a 54.5% probability. Regarding the Reserve Bank of New Zealand (RBNZ), expectations of a 25-bp cut by June rose slightly from 30.1% to 36% during the same period. The latter may explain why AUD has been faring worse compared to NZD.

Australian, New Zealand Government Bond Yields, AUD/USD, NZD/USD

AUD/USD, NZD/USD Outlook Looks Past Stocks to Rate Cut Bets

Chart Created in TradingView

AUD and NZD May Struggle for Sentiment Follow-Through

These currencies no longer hold a return appeal over the US Dollar. Benchmark lending rates in Australia and New Zealand stand at 0.75% and 1.00% respectively, lower than the 1.50 – 1.75% range from the United States. This year the Fed has signaled that it intends to keep borrowing costs unchanged. The RBA has hinted at further easing “if needed” as the RBNZ sees rates being “low for some time”.

This opens the door for the Greenback to in some cases outperform against AUD and NZD during times of market optimism. Or at the vary least, undermine some of their potential gains. There was a mixed reaction from AUD/USD and NZD/USD around economic data that impacted sentiment. These included U.S. retail sales and a slew of Chinese data such as GDP and industrial production.

With that in mind, it seems as though the focus for the Aussie and Kiwi may be more tilted towards monetary policy. They have seen minimal gains in the immediate sense despite the US-China trade deal boosting sentiment. Demand for relatively-safer local bonds seems to be holding. Follow-through will have to wait until it can impact the trajectory of the RBA and RBNZ. Until then, the yield advantage goes to the US Dollar.

Australian Dollar Technical Analysis

On a weekly chart, AUD/USD has been slowly rising since bottoming in August 2019. Prices climbed above the falling trend line from December 2018, but follow-through has been lacking. Taking out highs from July 2019 may refocus the medium-term technical outlook to the upside. Resuming the dominant downtrend entails taking out the psychological barrier between 0.6670 – 0.6743.

AUD/USD Weekly Chart

AUD/USD, NZD/USD Outlook Looks Past Stocks to Rate Cut Bets

Chart Created in TradingView

New Zealand Dollar Technical Analysis

NZD/USD has also taken out a medium-term falling trend line on the weekly chart below. This falls in line with the near-term uptrend since late September. Taking out highs from July exposes peaks from 2019 which creates a range of resistance from 0.6896 to 0.6969. Resuming the previous downtrend entails taking out the key support range between 0.6203 – 0.6255.

NZD/USD Weekly Chart

AUD/USD, NZD/USD Outlook Looks Past Stocks to Rate Cut Bets

Chart Created in TradingView

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES