Australian dollar + New Zealand dollar outlook: AUD and NZD power higher vs pound sterling (GBP)
We are seeing global stock markets rally in fine fashion on Monday morning; the same dynamics have pushed the Australian and New Zealand dollars higher in sympathy.
The pound sterling to Australian dollar exchange rate is 0.34 pct lower at 1.6812 while the pound sterling to New Zealand dollar rate is 0.05 pct lower at 1.9249.
It is worth noting that while GBP is undeniably in the red we have seen a decent recovery following the release of today's Construction PMI data.
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Why is the Australian dollar higher?
The AUD found support after Aussie retail sales suggested rate cuts are finally feeding into Australian economy.
The underlying message being that further AUD-negative rate cuts may now not be necessary.
"This morning Aussie retail sales rose 0.8% m/m, above estimates of a 0.4% m/m increase, showing signs that the central bank’s aggressive rate cuts are finally filtering through to the economy," says Sasha Nugent at Caxton FX.
As mentioned equity markets are also rallying; "Risk tone seems better Monday, thanks to the triple reasons of respectably strong PMI manufacturing data out of China and the UK and to a lesser extent, the euro zone. That together with expectations of a rate cut by the ECB at Thursday’s policy meeting and the delay to tapering by the Federal Reserve which was announced last week," says Ishaq Siddiqi at ETX Capital.
Outlook for the Australian dollar
There are a number of key releases from Australia this week.
Dominating the outlook is the RBA who meet early tomorrow morning.
"Recent data has shown signs that the lower rates have had a positive impact and the better Chinese data should see the RBA remain on hold at this meeting," says a note from Lloyds Bank Research.
Last week, Governor Stevens attempted to talk down the currency arguing that the strength was not justified by fundamentals.
The Bank is likely to reiterate its concern for the strength of the AUD, though it will be somewhat relieved that AUD/USD has eased lower, now over 3.0% down from the highs seen earlier this month.
Lloyds expect a relatively muted market reaction.
The labour market report and Monetary policy report released this week will also be a focus, though AUD/USD will likely be driven by USD sentiment.
New Zealand dollar supported by loan limits
Underpinning the NZ dollar today are signs that loan limits are providing the RBNZ with more flexibility with monetary policy
The New Zealand treasury has said the loan limits implemented by the central bank is dampening mortgage demand, and this will help delay the need for rate hikes amid concern about an overvalued kiwi.
"Despite these comments, kiwi is firmer although the solid figure from the UK could support GBPNZD back towards 1.9250," says Nugent.