On Friday, the Australian and New Zealand dollars sought to end the week on a firm footing, as interest rate differentials provided support and markets bet that upcoming US jobs numbers would strengthen the case for of the relaxation of monetary policy in that country.
China’s trade data was too mixed to offer new direction, as exports beat forecasts with a 7.6% rise, but imports disappointed with a 1.8% rise.
One bright spot was that iron ore imports rose 7% in the five months to May, with ore for making steel being Australia’s biggest export to the Asian giant.
The main theme of the week has been the start of easing cycles abroad, with cuts from the European Central Bank and Denmark on Thursday, following recent measures by Canada, Switzerland and Sweden.
Futures imply a 63% chance of another ECB cut in September and 36 basis points of easing this year, with another 63 basis points priced in for 2025.
As for the Reserve Bank of Australia (RBA), markets have a 50% chance of a 4.35% cash rate cut by December and just 46 basis points of easing until the end of 2025.
Investors are slightly more bearish on the Reserve Bank of New Zealand (RBNZ), partly because rates there are much higher at 5.5%. Futures call for a quarter-point easing by November and a 67 basis point cut through the end of 2025.
While Australia’s economic growth has been weak, New Zealand has been in a deep technical recession, said Nomura economist Andrew Ticehurst.
“The unemployment rate has risen further and inflation is likely to reach the target band sooner.”
“While the RBNZ has maintained a hawkish stance for some time, we expect a dovish pivot in New Zealand to come sooner as inflation moves closer to target.”
Consequently, he recommended going long the Aussie against the Kiwi with a target of NZ$1.1030, up from the current NZ$1.0767.
As for the US dollar, the Aussie rose 0.3% on the week and stood at $0.6671, close to the week’s high of $0.6699. Resistance lies at the May high $0.6714, with support at $0.6626 and $0.6591.
The Kiwi dollar held at $0.6197, after rising 0.9% for the week and hitting a three-month high of $0.6215. Support lies at $0.6670 and $0.6084. (Reporting by Wayne Cole; Editing by Kim Coghill)
