FUNDAMENTAL ANALYSIS
RBA decided to risk ‘the lesser of two evi ls’: either lowering rates further and fuel an already inf lating property market or choosing to maintain rates, keeping
as
tight a lid on property prices as possible but risking health
of economy.
There might have
been
a n o t h e r c r i t i c a l cons ideration: as a heavi ly d ep en d en t c om mo d i t y e x p o r t economy,
the the
the global economy in general . What might
a
FX slightly weaker
Aussie accompl ish? This was noted in the December
Up until the December meeting, the Reserve Bank of New Zealand maintained
a 75 basis
point spread over the RBA cash rate. The RBNZ reduced that spread by 25 basis points via a cash rate reduction at its pol icy meeting 10 days later. It should be noted that the Kiwi s t re n g t hene d f o l low i n g the meeting, at te m p t i n g to test Kiwi r e s i s t a n c e at
$1.0534 per Aussie, lowering rates would
have had little ef fect. The col lapse of commodity demand was almost entirely due to the refocusing Chinese economy which may have already stockpiled more industrial commodities than it could possibly use; the reduced demand for industrial commodities from other
nations China’s dependent economy; continuing
increase in global petroleum production exceeding demand and filing global storage capacity to the brim thus def lating prices and lastly, little improvement of
2015 RBA pol icy meeting1 inc reased :
“ ... Key commodi ty pr i ces are much lower than a year ago, re f l e c ting
supply, on
including from Aus t ral ia , as we ll as weaker demand. Aus t ral ia’s te rms of trade are fal l ing... ... The pace of g rowth in dwe l l ing pr i ces has mode rated Sydne y
ove r months
and has remained mos t ly subdued in other ci tie s ...” The statement concluded by noting that the RBA had the leverage needed to reduce fur ther, if that became necessa r y.
in Melbourne and re cent
(based on a 1 year Fibonacci retracement). It’s also important to note that this strengthening move continued through the RBNZ OCR reduction on 10 December and halted and reversed af ter the 25 basis point US Fed move on 17 December. The combined Fed action and RBNZ
action narrowed the
Fed – RBNZ spread by 50 basis points. Might the Fed have been the driving force behind AUD/ NZD?
The Kiwi weakened again vs the Aussie
towards Kiwi support at FX TRADER MAGAZINE April - June 2016 31
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