The US inflation report for October came out broadly in line with expectations and did not have a significant impact on the markets. The growth of core inflation by 2.3% is slightly lower than a month ago, but it allows the Fed to maintain the illusion of sustainable consumer demand and, as a result, stop the panic that will inevitably arise with the advent of a new wave of economic crisis.
The prospects for US and Chinese trade negotiations have deteriorated again as both countries play by their own rules. The United States needs to make significant concessions from China before the recession covers the economy. China dragged out negotiations and does not make concessions, based on the simple understanding that every new day worsens the position of the United States.
Therefore, markets are pulsing up and down, reacting to the leak of information about the negotiations. So today, after the publication of reports of new difficulties, the demand for bonds and protective assets as a whole began to grow, risky assets are returning to a falling trajectory.
NZD/USD
The RBNZ did not lower the rate at a meeting on Tuesday, despite a significant deterioration in the short-term growth forecast. As a result, kiwi added more than 1%, breaking out of the general trend for commodity currencies. Due to this, the market was taken by surprise, since the probability of a rate cut was estimated at no less than 80%, and was frantically looking for the answer to the main question - is the pause just a pause or does RBNZ really believe that the economic decline has bottomed out and further aggressive actions are no longer needed.
Perhaps, the answer lies in the fact that against the background of the expected reversal of macroeconomic indicators. The RBNZ did not need to lower the rate, since the trade-weighted kiwi rate (NZD TWI) was much lower before the meeting than the Central Bank expected. Accordingly, the income of exporters was not threatened, again due to higher import prices, Thus, this component can be expected to increase in the general calculation of inflation.
In addition, before the meeting, the RBNZ received a very positive report on the labor market, recorded an increase in commodity prices, primarily for dairy products, so a pause in the reduction in the rate is justified.
On the other hand, banks are hastily updating forecasts. If, prior to the meeting, the consensus was that the RBNZ would reduce the rate by the middle of next year to 0.25%, well now, there is no such certainty. ANZ suggests there will be only two declines, with the second only in August. These changes significantly change the prospects of kiwi, and if earlier it was assumed that NZD would look "a little worse than others", now the rating is "a little better than others."
Therefore, the bulls get the basis for an attempt to resume growth, until the end of the week, the maximum update of 0.6418 and testing of 0.6465 are likely. If previously such an opportunity was practically excluded, then at the moment the chances of successful testing and consolidation are higher and the movement to 0.6500 has significantly increased.
AUD/USD
The Australian dollar continued to decline after the publication of a noticeably weaker-than-expected China Industrial Production Report for October. At the same time, both the RBA and the Australian government adheres to the agreements previously adopted. It was decided not to make any changes to the current statement (which is essentially an agreement on coordination of actions).
As a result, Australia's financial authorities continue to insist that "the proper goal is to keep consumer price inflation at an average of 2-3% over time." The Melbourne Institute's updated inflation expectations report released this morning showed growth to 4.0% from 3.6%, while 3.2% was forecast, and NAB is confident that Australia's economic slowdown has bottomed out and next year growth will return to above 2.5%.
As it turned out, all these factors, which were supposed to contribute, if not to strengthen, then at least stabilize the Australian currency, have no significance for the market. AUD reached the next support zone 0.6790 / 6810, and if it is technically possible to roll back to the zone 0.6820 / 30, then such a rollback will not mean that a minimum has formed. On the contrary, any growth attempts will increase the chances of another wave down, and therefore, it is more logical to use growth to enter short positions. In turn, the medium-term target lies at the lower border of the channel 0.67, which began to form in September, and a test of this level is becoming more and more likely.
