Australian and New Zealand dollar bear the brunt of Chinese slowdown, RBNZ decision looms
The Australian dollar (Currency:AUD) has today reminded us why so many traders continue to bet against it, a look at the latest wholesale market rates reminds us just how prone the Australian currency has become to sell-offs when data disappoints:
- The Pound / Australian dollar exchange rate is 0.75 pct in the blue at 15:00 in London; GBP/AUD is at 1.6660.
- The Pound / New Zealand dollar exchange rate is 0.4 pct higher at 1.9298.
- The Australian dollar / US dollar forex rate is 0.9 pct down on Tuesday night's close at 0.9213.
- The New Zealand dollar / US dollar forex rate is 0.5 pct higher at 0.7957.
Please Be Aware: The above market quotes mean very little considering that your bank will affix a discretionary spread when passing you their retail rate. An independent FX provider will however guarantee to undercut your bank's offer and get you closer to the market rate, thus delivering you more currency. Please learn more here.
Commodity currencies in renewed sell-off
Max Cohen at Spreadex points out that the commodity currencies, like equities, have been hit by poor data out of China today:
"Looming over global equities, the massive slowdown in Chinese manufacturing remains prominent in investors’ minds. The knock-on effect is already being felt with Japanese exports slowing despite a weaker yen. China's overall PMI of business conditions fell to 47.7 from June's final reading of 48.2, a third straight month below the watershed 50 line and the weakest level since August 2012."
Inflation numbers fail to ride to the rescue
Shaun Osborne at TD Securities says, for the Aus Dollar, good inflation was not nearly enough to offset the Chinese data:
"The AUD had a lot to digest in a short period, with a mixed but overall better than expected Australian inflation report initially lifting the currency above 0.9300 before the flash Chinese PMI unwound any positive tone shortly after.
"The somewhat better inflation report suggests the threat of an RBA rate cut next month has diminished slightly, but the more pressing concern for markets is the state of activity in China.
"The flash PMI raises fears of a sub-50 print for the official PMI next week, and such an outcome could re-ignite fears of a ‘hard landing’. As was them case overnight, the AUD would take the brunt of such a result,m with the NZD close behind."
New Zealand dollar: Focus is now squarely on the RBNZ
For the NZD, the closer key event is the RBNZ meeting at the end of today’s session. The Bank is universally expected to keep the policy rate steady, but there appears to be a greater risk of a more dovish message that should put a bit more pressure on the currency.
The Bank is in a position to highlight last week’s soft inflation report as an offset to the upswing in house prices, credit and construction. The balance of risks favours lifting the cash rate sooner, but the RBNZ remains determined to experiment with macroprudential tools first.
As such Osborne says he expects Governor Wheeler to repeat that the Bank expects “to keep the OCR unchanged through the end of the year”. We continue to pencil in March 2014 as the timing for the first tightening.
Be assured, any interest rate cut announced tonight will send the New Zealand dollar plummeting.