The Australian and New Zealand Dollars are falling sharply on Tuesday as investors prepare for widely expected central bank rate cuts later this year. For the Reserve Bank of New Zealand, the rate cut could come as early as next month. For the Australian Dollar, investors may have to wait until August.
Position-squaring ahead of Wednesday’s Australian consumer inflation report is also weighing on both currencies. The government data is expected to show that the CPI Index rose 0.2%, down from 0.5%. Trimmed Mean CPI is expected to have risen 0.4%, unchanged.
Today’s price action suggests investors are preparing for lower than expected inflation data. The sell-off is taking place despite a softer tone from the RBA regarding rate cuts. Last week’s stronger than expected GDP data from China and better-than-expected employment change data from Australia failed to impress buyers. Prices have been collapsing since these events.
In New Zealand, the RBNZ was quite clear last month when it said the next policy change by the central bank is likely to be a rate cut. Furthermore, last week’s CPI data served as proof that the economy is weakening. Therefore, justifying the rate cut.
Thin trading conditions could also be helping to exaggerate the sell-off. The Australian and New Zealand markets were closed on Friday and Monday. And they close again on Wednesday. If the major banks and institutions are still on the sidelines, volatility could be heightened and small orders could drive the markets violently in either direction.
This article was originally posted on FX Empire
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