Talking Points
- The Australian Dollar rose despite some patchy economic data
- The New Zealand Dollar got a lift from central bank comments
- The Aussie now looks toward Tuesday’s RBA policy call
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The Australian and New Zealand Dollars both got lifts against their American cousin Tuesday, but for different reasons.
The Aussie’s boost came after a raft of economic data were released. It was by no means entirely positive. The third quarter’s balance of payments current account came in at -A$9.1 billion (A$100 million deeper in the red than expected), while net exports came in flat, well below the previous quarter’s 0.30. However retail sales did better than forecast. They rose by 0.5% on the month in October, above the 0.1% gain expected. The Reserve Bank of Australia is keen to see a rise in domestic demand so any data attesting to it tends to lift the currency.
The Aussie market will now look ahead to Tuesday’s monetary policy decision. The Official Cash Rate is expected to stay on hold at its 1.50% record low. However, the extent to which the RBA is seen to endorse current futures market pricing – which sees no rise in 2018 – will be crucial.
Meanwhile the New Zealand Dollar got some support from comments made by acting Reserve Bank Governor Grant Spencer. He said that the central bank’s policies were working pretty well, especially when it came to managing inflation expectations. Spencer said that the RBNZ was already becoming more flexible in its inflation targeting, with more weight already attached to such variables as output, employment and financial stability.
This commentary comes at an important time because the recently installed New Zealand coalition government is reportedly keen to expand the RBNZ’s monetary mandate so that includes some kind of formal commitment to full employment. Spencer did not refer to this explicitly but said that there should be caution around any changes to the current framework.
Given that the prospect of a mandate has probably weighed on the kiwi, on the suspicion that its addition would mean that monetary policy stays loose for longer, the RBNZ’s implicit opposition to any change may have been what lifted NZD/USD.
Despite Tuesday’s gains both currencies remain under pressure against the US Dollar. The prognosis for a Federal Reserve in quite aggressive monetary-tightening mode through 2018 contrasts sharply with much more cautious and measured forecasts for both the RBA and the RBNZ.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX
