The economic docket for the week ahead is expected to remain somewhat slow. The RBA and the RBNZ will be holding their respective monetary policy meetings this week. As a result, focus shifts to the AUD and the NZD for the week ahead. Both the central banks are currently on an easing cycle.
New Zealand will also be releasing its quarterly jobs report covering the three months ending June 2019. New Zealand’s unemployment rate has been hovering around 4.2% and 4.3% over the past two quarterly periods.
Here’s a quick recap of what’s to come in the currency markets this week.
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The services PMI reports will be coming out this week from the eurozone. The services sector is expected to pull through amid a slowdown in the manufacturing sector. An upbeat report is unlikely to do much for the euro area. With the ECB already signaling that it will ease come September, the services PMI report could be brushed aside.
The UK will be reporting on its GDP figures this week. Forecasts show that economic activity is expected to rise by 1.8% on the year in the second quarter. This marks an unchanged print from the previous quarter. Besides the GDP report, the monthly industrial and manufacturing production figures are also due.
The European Central Bank will be releasing its monetary policy meeting minutes this week. The meeting minutes could prove to be critical for the markets. With the central bank announcing its willingness to ease further, the minutes could provide further details into the ECB’s plans.
Economic data from the United States this week takes a backseat. The week starts off with the ISM’s non-manufacturing PMI report that is due to come out on Monday.
RBA Likely to Maintain Easing Bias
The Reserve Bank of Australia has been in an easing cycle, in line with the global central banks. The RBA has already lowered interest rates twice this year in June and July. The cash rate currently stands at 1.00%, which marks a record low for the country’s interest rates.
Following the two rate cuts, it is unlikely that the RBA will be following through with another rate cut this month. If it does, it would be the third consecutive cut, which is unlikely to happen in August.
Economists do expect the RBA to deliver one more rate cut later this year, perhaps during the autumn period. This would bring Australia’s interest rates to a new low of 0.75%.
The central bank is likely to remain on the sidelines this week. The RBA will, however, focus on forward guidance, as it is also seeing a slowdown in the labor market. Australia’s unemployment rate has been consistently below the RBA’s target for a while now. Therefore, the central bank could wait for the jobs report for July and August before deciding on the next move.
Will the RBNZ Cut Interest Rates Again?
The markets are quite divided heading into this week’s monetary policy meeting. The Reserve Bank of New Zealand could cut interest rates once again, marking a second consecutive monthly rate cut.
The RBNZ’s official cash rate stands at 1.50%. The central bank lowered interest rates in May this year, delivering a 25 basis point rate cut. This brought the official cash rate from 1.75% to 1.50%.
The RBNZ’s rate cut this week could bring the official cash rate to 1.25%. This would mark a historic low in the OCR.
The RBNZ’s forward guidance will also play an important role this week. The central bank is expected to maintain an easing bias. Further rate cuts cannot be ruled out, and the RBNZ’s monetary policy meeting comes in a week that also includes the quarterly labor market data.
The cooling economic conditions are likely to reflect in the labor market as well. This could potentially lower the prospects of inflation expectations. New Zealand’s inflation is likely to slip further away from the RBNZ’s inflation target rate.