Asian exchanges are growing on Monday morning, the immediate reason was the IMF’s refusal to consider China a currency manipulator. The IMF does not see a significant overvaluation or undervaluation of the yuan last year, and the next analysis will be carried out in 2020 within the framework of standard procedures.
Thus, the US has not yet received international support in the trade war with China. Nikkei, Shanghai Composite grow within 1%, the S&P 500 futures are traded with the excess of Friday, the panic subsides.
The RBNZ presented a surprise, but some reduction in the rate from 0.50% took both markets and analysts by surprise. The unexpected move led to a sharp drop in markets, and index bonds for the first time in history began to trade with negative returns, and rates on others reached record low values.
The RBNZ did not wait for the New Zealand economy to begin a clear slide into recession but delivered a preemptive strike. The reason for such a sharp decline in the rate, as explained by RBNZ, was the deterioration of the global situation in recent weeks. Probably one of the immediate reasons was the weakening of China’s yuan exchange rate below the mark of 7.00, which affected the results of the GlobalDairyTrade auction, the weaker yuan influenced the demand from Chinese importers, and the expected drift of the yuan to the mark of 7.50 demanded that the monetary authorities of New Zealand protect their exporters by reducing the TWI.
Another factor is the very weak GDP growth forecasts, which indicate that there are virtually no internal reserves for growth.
Now, the markets are inclined to think that at the September meeting, the RBNZ will take a break to assess the consequences of its radical actions, but closer to the end of the year, it will make another reduction in the rate, bringing it to 0.75%. Such prospects for the kiwi are negative because they suggest a more aggressive plan of action than the Fed, and the only way for the New Zealander to stay at current levels is stable macroeconomic indicators that exclude a slide into recession so that it does not happen faster than in the rest of the world.
This week, we need to pay attention to the publication of the price index for food and rent in July, a good result is predicted for both indicators, which will support the kiwi. NZD won back half of the fall of August 7, and the current level should be recognized as stable, trading will continue in the range of 0.6435 – 0.6500. The downside may occur if the markets receive a clear negative signal that worsens the prospects of world trade. If the week is calm, then drift to the upper limit of the range and then to 0.6530/40 is likely.
Last week, the RBA left the rate at 1.0% after two consecutive cuts in June and July, and although the RBA notes a high demand for labor and hopes for a gradual recovery in the coming years, another reduction before the end of the year is growing in the markets.
At the moment, after the unexpected decision of the RBNZ, rates in New Zealand and Australia are equal at 1.0%, and it is expected that they will remain equal at 0.75% at the end of the year.
The RBA also revised the forecast for GDP in 2019, reflecting weak consumption growth and a significant decline in housing construction.
This week, quite a few important data on Australia will be published, in particular on Tuesday – indicators of the business climate from the NBA, on Wednesday – the consumer confidence index from Westpac, on Thursday – the employment report in July and inflation expectations from the University of Melbourne.
Given the positive opening of the week, some recovery in oil prices and a pause in the actions of the RBA, we can expect the stabilization of the Aussie rate at current levels. Support of 0.6750/55, the decline to which can be used for purchases with a target of 0.6815/20, with the growth of positive Aussie can rise to 0.6870/80.
The material has been provided by InstaForex Company – www.instaforex.com