RBA stay the course - next up NZ jobs: AUDUSD and NZDUSD

Currency exchange rate board of multiple currencies
Tony Sycmore
By :  ,  Market Analyst

As widely expected, at its monthly board meeting this afternoon, the RBA kept monetary policy on hold, including its targets of 10 basis points for the cash rate and the yield on the April 2024 Australian Government bond.

The RBA's forward guidance remained dovish as it reiterated that the conditions needed to raise interest rates (inflation sustainably between the 2 to 3% target rate and wages growth of 3%) are unlikely to be met until 2024 at the earliest.

After announcing a tapering of its latest QE program at its July Board meeting, and despite a surge in new Covid cases currently impacting the economy, the RBA plans on staying the course.

It will continue to purchase government securities at the rate of $5B a week until early September and then taper to $4B a week until mid-November. Caught off guard by this, the AUDUSD jumped 30 pips after the announcement from .7370 into resistance .7400/20.

Attention for traders of the Antipodean currency pairs now turns to tomorrow morning's labour force data in NZ.

Before reviewing expectations for the jobs data, we note this morning the RBNZ proposed to tighten mortgage lending standards by restricting high LVR owner-occupier lending to 10% of all new loans effective 1 October, and it may introduce debt-to-income restrictions and interest rates floors.

As directed by the NZ Government, the RBNZ now explicitly targets housing prices, up over 30% in the past 12 months. Should the RBNZ's proposals be implemented, it would suggest the need for a less hawkish RBNZ rate hike path.

Returning to tomorrow jobs data, the expectation is for the unemployment rate to fall to 4.5% from 4.7% and the participation rate to increase to 70.6%. The tightening labour market pushing wages growth 0.6% higher in the quarter.

The NZDUSD has been encapsulated in a 0.6880-0.7050 type range for the past three weeks, supported on the downside by expectations of a 25 bp rate hike at the August 18th RBNZ meeting.

A rally above .7050 and then above the 200-day moving average currently at .7100 would indicate that the NZDUSD has completed a correction from the February .7465 high at the recent .6881 low and that the uptrend has resumed.

Aware that should the NZDUSD break and close below support at .6900/.6880, it would warn that a deeper correction is underway, towards .6700c/.6500c.

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Source Tradingview. The figures stated areas of the 3rd of August 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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