It has been pretty ugly lately for the Australian Dollar, as a perfect storm of factors have led to some severe downside. However, there were signs of life for the beaten up currency last week, despite very little change in the forces fighting it. We can put the hold up on AUDUSD down to technical levels, however that can also mean that it may be short lived. Yet again, the trade conflict between the US and China will be the biggest worry for those holding Aussie denominated risk, despite much of the bad news being priced in.
AUDUSD managed to hold on to the 0.7000 level, which was the only saving grace for a torrid last few days of the week. However the move from lows at on October 10 have given life to the battered currency. The recent bounce has turned 0.7100 as the key downside support level, which is S1 on the daily pivot points.
The currency will be at the mercy of the US as any more stock market slumps, or bond yield moves will add to downside. With the start of earnings season in the US it is yet to be seen whether the company data will help or hinder the stock market uncertainty.
Given that the Reserve Bank of New Zealand’s (RBNZ) dovish policy has been a key factor weighing on the New Zealand Dollar, with the 3Q Consumer Price Index (CPI) report being an important test of this. The market is still pricing in a small chance that we will see a rate cut in the first quarter of 2019. Any positive CPI surprise could dent any lingering dovish sentiment. Market consensus for the headline CPI print is +0.7% QoQ (versus +0.4% prior). With business confidence also a key concern for policymakers, it is doubtful that investors will look for any hawkish RBNZ headlines on any solid CPI release this week.
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies