rbnz aussie jobs preview 1138492015

The upcoming RBNZ decision (due at 20:00 GMT) should be expected to leave rates unchanged, but beware of any new signs of dovishness in the statement aimed at guiding the kiwi lower. The other event of the evening is Australia’s jobs report (due at 00:30 GMT). Both the Aussie and NZD have been punished hard against the USD, but AUDNZD has recovered substantial ground since last week.

Ahead of the RBNZ

Today’s RBNZ decision is widely expected to hold rates unchanged at 3.50% due to an overheated housing market , robust consumer confidence and prices pressures that are far from the rest of the world’s disinflation-bound. The last RBNZ announcement of Jan 28 triggered sharp losses in NZD as the central bank formally shifted towards a neutral stance from a hawkish disposition.

A stark reminder to kiwi traders is that any inevitable remarks from RBNZ governor Wheeler indicating that kiwi remains overvalued may lead to short-lived selloffs before a swift snapback because after all, the currency yields the highest interest rate among top traded currencies.

It would take a shoft in stance (which already happened), or a stark change in language, such as mentioning the possibility of reducing rates.

There are two ways for Wheeler to effectively drive down the currency:

i) Offer more detail on the RBNZ’s efforts to implement macroprudential measures towards the property market. Since NZ’s overheating property sector stands as the main obstacle to a rate cut, any means to cool it off may imply the door is open for easing ahead in order to weaken the currency.
ii) Aside from downward revisions in GDP growth and CPI, RBNZ could remove the phrase “Future interest-rate adjustments, either up or down, will depend on the emerging flow of economic data”, replacing it with the sentence that the RBNZ expects rates “on hold for some time”.

The other drag on the NZD is the threats to Fonterra over contamination of baby formula from ecological groups protesting the govt’s use of pesticide in controlling wild animals. It is not certain whether Wheeler will address this topic. A neutral RBNZ would likely support NZD anew, but not against AUDNZD, which could further test the 1.0570 trendline.

Aussie jobs report

Aussie jobs in February are expected to have added 15K after a net decline of 12K, with the unemployment seen unchanged at 6.4%. The breakdown between full-time and part-time jobs will also be crucial in commanding market reaction. The January breakdown was -28K FT and +16K PT.

Last night, RBA assistant governor Kent said confirmed the door remained open for further policy easing, while he understood the negative effects on savers. One comment, which was AUD-positive was Kent’s acknowledgment that the declining Aussie was starting to help the economy adjust, but uncertainties about the outlook do remain as unemployment has yet to reach its peak.

AUDUSD remain well within its September 2014 downward channel, which held over the past 2 weeks’ bounces. With our expectations that China sees no real recovery in sight, the RBA will not only keep the option for further rate cuts, but also talk down the Aussie—especially in the event of any dovish surprise from the Fed. In order for the 6-month channel to hold, AUDUSD recoveries will remain capped at 0.7780s.