FX comment – Bias for a weaker AUD and NZD remains on the cards

by: Roy Teo

  • NZD slides on soft labour print
  • AUD sideways after mixed data release

 

 

NZD slides on soft labour print

The New Zealand dollar (NZD) was under pressure this morning after employment in the third quarter declined by 11k, the first quarterly fall in three years. The unemployment rate edged higher from 5.9% to 6.0% as expected but the participation rate fell from 69.3% to 68.6%. Wage growth also slowed from 0.5%qoq to 0.4%qoq. In addition, global dairy auction price index fell by more than 7% overnight. Both sets of data reinforce our view that the Reserve Bank of New Zealand is likely to lower the Official Cash Rate by 25bp to 2.50% later this year in December. This is not fully priced in by financial markets. Hence a weaker NZD towards 0.64 by the end of this year remains on the cards.

 

AUD sideways after mixed data release

The Australian dollar (AUD) traded in a range of around 0.7180 to 0.7195 this morning due to mixed economic data releases. On the bright side, Australia’s trade deficit narrowed more than expected in September. Nevertheless, we like to highlight that the trade deficit in the first three quarters of this year is more than twice than the whole of last year. Separately, the expansion in the service sector for four consecutive months faltered, contracting in October at the faster pace since December last year. The new orders and employment sub-components also declined for the second consecutive month to 48.9 and 48 respectively. This morning data release reinforce our view that the Reserve Bank of Australia should increase monetary stimulus sooner than later to support the fragile economic recovery. We maintain our view that a weaker AUD towards 0.70 is likely by the end of this year.