Australia & New Zealand Outlook

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With the positive tone around US-China trade negotiations lately, we should check in on our Oceanic friends who trade with the Asian Giant.

While we don’t expect a major shift in trade until an agreement is actually signed, an improvement in sentiment and expectations can drive the currencies in the lead-up to a trade truce.

Given the latest data from the two countries, that’s likely to be a relief for regulators. And, it could be opening up the chance to break the many months-long slide in the currencies!

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The RBA’s employment obsession

For the AUD, there had been some expectations ahead of Governor Lowe’s speech on Tuesday that he’d use the opportunity to at least hint at the possibility of non-conventional measures. That is, that the RBA might be considering embarking on QE.

But, he started out by saying that it wasn’t in the cards, leading to a spike in the currency. The spike faded, however, as he noted that all options were still on the table. This left traders and analysts back to where they were in the beginning.

The key point was to re-emphasize the importance the RBA is placing on employment right now. This is why we want to pay attention to leading employment indicators. Generally, businesses are loath to cut employees, and it is the last indicator to move during periods of economic stress.

What to look out for

We have a wealth of Australian data coming out for the rest of the week.

One to keep an eye on is Private New Capital Expenditure, which unfortunately only comes out quarterly. If companies are planning to hire and expand, they will boost their Capex. The consensus is for an increase of 1.3%, which would be the first positive quarter so far this year.

The other bit of data is on Friday, which is Manufacturing PMI for November. Expectations are for it to stay just marginally in contraction at 49.9, same as October. The measure has been sliding all year, so coming to a stop would still be a positive sign.

New Zealand making some headwind

The kiwi economic calendar is a little lighter. Of note is tomorrow’s ANZ Business Confidence, which is expected to remain substantially in contraction at -30.8, but still improve from -42.4 prior.

This would be the best result since May and would come on the heels of better than expected retail sales for Q3 being reported.

With New Zealand less affected by trade concerns, they stand to benefit less from a return to normal. Though they continue to benefit from increased global dairy prices.

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