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The Australian and New Zealand dollars were a resounding success last week as bearish traders increased their bets for a rate cut by the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand. The catalyst for most of the selling pressure has been the rise in the unemployment rate in Australia. Stronger US economic data and growing concerns over US-China trade relations have also put pressure on the Australian and Kiwi.
Last week AUD / USD was 0.6868, down 0.0131 or -1.87% and NZD / USD was down 0.6514, down 0.0085 or – 1.29%.
Australian dollar
Last week, the exchanges focused on the Australian labor market. The wage price index stood at 0.5%, below the 0.6% forecast. The change in employment showed that the economy grew by 28.4K in April, well above the estimate of 15.2K. The previous month had been revised to 27.7K. The unemployment rate reached 5.2%, up from 5.1% revised upward. The traders were looking for a reading of 5.0%.
Although the economy has created more jobs than expected, the AUD / USD pair plunged last month, with part-time jobs accounting for the bulk of gains while full-time jobs have fall. In addition, the unemployment rate reached its highest level in eight months. According to these data, the RBA could be forced to lower rates quickly to stimulate the economy.
In addition, Australian real estate loans fell 2.5%, well below the 2.2% increase. The previous month had also been revised to 1.4%. This report indicates that the weakening economy is having a negative effect on housing demand in Australia.
Westpac's consumer confidence also dropped from 1.9% to 0.6%, indicating that consumers are easing their economy.
New Zealand did not release any major reports last week, but producer inflows and outflows were well below expectations.
The positive reports from the United States and the consistent tone of most Fed stakeholders also weighed on the Australian and Kiwi. In the United States, the major positive developments were an increase in the Empire State Manufacturing Index from 10.1 to 17.8, an increase in the Philly Fed Manufacturing Index from 8.5 to 16.6, and better than expected for housing starts. Weekly jobless claims also showed a strengthening of the job market, at $ 212,000, a figure lower than the $ 220,000 forecast.
The main drag on the Australian and Kiwi has been the unexpected rise in consumer sentiment. According to the University of Michigan, consumer sentiment reached 102.4, far exceeding the forecast of 97.8. This helped to reduce the risks of a US recession and rate cuts by the Fed.
Weekly forecasts
Over the weekend, Australian Prime Minister Scott Morrison won his conservative-liberal coalition to victory. He also promised to immediately get back to work after a surprise victory that saw him re-elected for another three years. According to Bloomberg, "the Australian dollar should strengthen against the greenback after the center-right government of the country has clung to power to win a surprise election victory this weekend."
The news is potentially optimistic as it eliminates Labor's tax proposals. This should ease the housing market. In addition, as the outgoing government is seen as a stronger economic manager, the business climate is expected to improve, according to Andrew Ticehurst, rate strategist at Sydney at Nomura Holding Inc. "It's a net benefit for the stock market and the Australian dollar rebound, "he added.
Medium and long-term prospects
In the short term, the election results could give a boost to the AUD / USD, but the gains may be limited and prices could further fall due to the weakening of the US dollar. economy and the expected reduction in rates. But suppose a rate cut was almost charged on the market. Merchants do not really know if it will happen in June, July or August.
In its recent monetary policy statements, the RBA said a lack of improvement in the labor market would warrant a rate cut, so last week's data will probably be of great concern to them. Traders are now placing a 50/50 chance in June.
The data "increased the risk that the Reserve Bank of Australia (RBA) will reduce its key rate in June, earlier than our July call," said Kaixin Owyong, an economist at the Sydney-based National Australia Bank.
In addition, investors will closely monitor the US-China trade relations, which apparently stopped on Friday, according to reports. According to reports, the two economic powers virtually ended trade negotiations after the United States hit Hauwei with new sanctions.
With election results added to the equation, traders should look for volatility and a two-way trade. According to the election results, the news should not prevent the RBA from raising rates, but it brings hope to the economy.
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