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US rate cut expectations give some relief to the AUD and NZD

Published October 4, 2019

By Nicholas Cork

Yesterday the Australian Trade Balance for August was released with it still loitering near its 40-year highs at 5.92bio, a touch under market expectations of 6bio. The AUD clung onto 0.6700 post data and broke above short term resistance at 0.6720 overnight after the US non-manufacturing PMI plummeted below all market expectations to 52.6, it’s 2nd lowest reading in 7 years, with the employment index showing the weakest reading since February 2014, causing the USD index to retreat further from its recent highs.

AUDUSD continued on to 0.6750 and looks entrenched in a 0.6670/0.6770 range, for now, bar any major surprises with today’s retail sales data for August due at 11.30 am AEST. The Reuters poll shows economists expecting a rebound to +0.5% from last month’s surprise dip to -0.1%. Also of note today will be the RBA’s Ellis speaking at an Australian Industry Group event in Geelong and the RBA’s bi-annual Financial Stability Review should be due for release imminently.

Tonight sees three voting Fed members speaking along with the US trade balance and US unemployment data releases. Since Monday expectations of a rate cut in the US in October have risen quickly from 40% to 90% after the weak manufacturing and non-manufacturing releases. These expectations have helped support the AUD and NZD off their multi-year lows as the Interest Rate futures differential between AU and the US and NZ and the US have reduced markedly, with the US 2 year yield actually falling to a 2 year low overnight.

Have a great weekend.