New Zealand + Australian Dollar: AUD Remains Prone to Interest Rate Cut, Relief Rally Lifts Both NZD and AUD in Short-Term

Driving demand for the Aus and NZD dollars was news that the U.S. and Russia agreed on a deal to inspect and destroy the Assad regime’s chemical weapons stockpile.

Any outcome that reduces the risk of a military strike against Syria is seen as a positive for risk appetite and a near-term negative for the safer dollar.         

As a result we see the Pound Sterling to Australian Dollar exchange rate is 0.79 pct lower; GBP/AUD is quoted at 1.7041 at 15:02.

PS: The above quotes are wholesale; your bank will charge a discretionary spread when passing on their retail rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please find out more here.

The Pound to New Zealand Dollar exchange rate is 0.46 pct lower at 1.9445.

"The Aussie rallied to a 3-month high overnight, in-line with the general rise in riskier and higher yielding assets. News over the weekend that the U.S. and Russia agreed to a plan that (at least in the near-term) reduces the risk of a military strike against Syria supported risk appetite. AUD upside however may be limited as the prospect of additional RBA monetary policy easing gains traction in the coming months," says Omer Esiner at Commonwealth Foreign Exchange.

There is also the issue of Larry Summers withdrawing from the race to be the next US Fed Chairman, we look at this here.

ANZ Research see lower Australian interest rates for longer

Have we seen the worst of the Australian dollar's decline?

Not so if you consider the Reserve Bank of Australia could cut the base interest rate once more.

In a note to clients ANZ Research have said that further easy monetary policy is indeed likely:

"While we look to be getting close to a low in the cash rate, the headwinds currently facing policy suggest that rates are set to remain lower in the near-to-medium term than historical comparisons would imply.  

"The higher level of funding costs relative to the cash rate is the biggest single factor keeping the cash rate lower than compared with history, although added to this are the headwinds from the more cautious consumer, the falling terms of trade, the high exchange rate and fiscal consolidation.  

"The near-term bias remains for still easier monetary policy."

New Zealand and Australia: The outlook this week

Turning to the outlook, we see that in New Zealand, Q2 GDP data will be the key focus (on Thursday).

ANZ expects no growth in the quarter due to falls in agricultural production and mining following the drought and growth to have been around 2.2% in the year to June. On Friday, ANZ job ads for August are released.

In Australia, the key event will be the Minutes of the RBA’s September Board meeting (on Tuesday).

Markets are beginning to toy with the idea that we are close to the low for Australian cash rates and interest rate rises are beginning to be priced in from the middle of 2014.

"We continue to see risk of a further cut in the cash rate and no early increase in rates (before 2015).  The Minutes will be scrutinised for greater communication as to what was discussed at the Board meeting. The RBA Bulletin for the September quarter will be published on Thursday," say ANZ Research.