Friday’s August US jobs report didn’t help clear the murky trading waters heading into the Fed’s September meeting, with a slight miss potentially complicating the decision.
“USD Non-Farm Employment Change (173K v 215K expected, with the previous month’s number being revised from 215K to 245K)”
It is interesting to note that the August NFP print historically misses expectations but is then often revised higher in the coming months.
With a broad rise across the board in USD following the release, markets are not counting out the possibility of September liftoff. The drop in the unemployment rate also supports the prospect.
The weekend also saw G20 meetings conclude with some interesting comments being released from the Governor of China’s central bank, Zhou Xiaochuan. Japanese Finance Minister Taro Aso let slip that Zhou repeatedly stated that ‘the bubble in his country had burst’. Something that you don’t often hear from the highly regimented, planned economy.
This was after it was revealed that it was China that dominated discussion rather than the Fed, with China’s sluggish economic performance and stock market unpredictability high on the agenda. This however is a bit of what came first, the chicken or the egg as the Fed takes a wait and see around China.
RBNZ Path is Clear
ALL surveyed economists are expecting the official cash rate of New Zealand to be cut at Thursday’s meeting.
A survey of economists by comparison website Mortgagerates.co.nz found all were expecting a rate cut of 25 basis points, which would take the official cash rate to 2.75%.
“It would be interesting to see how the Reserve Bank navigated the balance between managing too-low inflation and a hot housing market in Auckland.”
“I wouldn’t be surprised if they pointed out that there is more to the economy than dairy prices.”
Here Donal Curtin of Economics New Zealand expects a cut but his comments show the similar dilemma that the RBA faces from both mining and the Sydney property market.
So how much of the impending cut is priced in? There’s more to the drop here than just interest rate cuts being priced in, but that is one bearish looking daily chart! Take a look at the Chart of the Day section below as we take a look at a possible trading scenario.
On the Calendar Monday:
AUD ANZ Job Advertisements m/m
USD Bank Holiday
CAD Bank Holiday
Chart of the Day:
With ALL surveyed economists predicting an interest rate cut heading into Thursday’s RBNZ decision, I wanted to highlight what happened last time a cut was fully priced in.
I have drawn a box around the end of the week heading into the cut’s price action, highlighting the steep drop as the market jumps on board expecting the cut.
As you can then see from the arrows, price opens the week on its lows and rallies into the decision, culminating in a news spike to the upside on a cut.
With a cut all but priced in once again, could we see similar NZD/USD price action this week? Keep an eye on the Technical Analysis section of the Vantage FX News Centre for our Wednesday RBNZ preview.
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Dane Williams – @VantageFX
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