- NZD/USD is linked up to the Aussie and yields could struggle on an uber dovish RBA.
- There is a negligible chance of an OCR cut at the Monetary Policy Statement on 12 Feb.
NZD/USD is currently trading at 0.6461 between a low of 0.6452 and a high of 0.6477 as we head over to the Asian session where traders are getting set for the Reserve Bank of Australia’s interest rate decision.
In the US session, the US dollar rose modestly as the January manufacturing ISM beat expectations. The US manufacturing survey data arrived a lot hotter than expected and the greenback extended gains after ISM Manufacturing PMI beat with 50.9, way above 48.5 expected and putting the industrial sector back into the green. DXY has been as high as 97.89 from a low of 97.37 and the 10-year is at 1.5360% but had spiked earlier in the session to a high of 1.5760%. Meanwhile, NZD remains at the whims of risk appetite, with NZ labour market data (out tomorrow) and inflation expectations (out Friday) likely to drive direction this week.
Looking ahead, there is a negligible chance of an OCR cut at the Monetary Policy Statement on 12 Feb, pricing it at only 10%. However, the RBA is today and should there be a rate cut, you can expect the RBNZ to be leaning more on the dovish side as well, especially as the possible impact on the economy from the coronavirus.
It was a bit of a blood bath overnight with China returning. Yohay Elam, Senior Editor and Analyst at NDDFX update us on the Coronavirus news as follows:
Coronavirus news: The number of official cases has topped 17,000, and the death toll is around 360. The first death outside China has been reported, and additional airlines have limited flights to the mainland. Testing kits have improved, and medicine used for HIV may help in curing the virus. The worst is probably still ahead.
Coronavirus market response: Chinese markets have reopened after the New Year’s holiday with a sharp downfall, carrying down prices of metals. The People’s Bank of China cut interest rates on reverse repos and took other measures to stabilize markets
RBNZ to retain their guidance
Meanwhile, the RBNZ may retain guidance that the OCR could be reduced if necessary considering that the NZD is one of the most exposed currencies to the Coronavirus, due to New Zealand’s economic ties with China and the high beta to risk sentiment as well as the nation’s dependence on tourism. This all suggests downside risk for NZD/USD, but also for AUD/NZD as the Aussie is likely has more downside risks than the Kiwi to the virus.
RBA Preview: Imminent cut expectations to weigh heavily on AUD
NZD/USD Asia Price Forecast: Kiwi pressuring the 2020 lows, trading sub-0.6500 figure