Unlike its neighbor, the Reserve Bank of New Zealand, which justified its decision to maintain rates unchanged two weeks ago thanks to an apparent rebound in economic activity, the Reserve Bank of New Zealand appears without any arguments that would confirm that the Australian economy is doing well. Following RBA Governor Philip Lowe speech on unconventional monetary policy and its “improbable” implementation in the near future lacks of consistency as growth, labor and inflation expectations stand largely below initial and long-term targets. Yet positive developments in the US – China trade conflict after US President Donald Trump statement that a first phase trade deal is at reach, corroborating Chinese side comment yesterday, could well reverse the trend in a positive way. For now AUD should remain under pressure as a result of negative construction activity as well as Westpac’s dovish case of the RBA seen adopting QE and two rate cuts by 2H 2019.
Despite a risk-on environment dominated by positive news from both US and China camps, with negotiations focusing on IP rights, US agricultural products purchases and tariffs rollback, the Aussie struggles to take part of the movement, losing sight among G10 currencies. Definitely, the latest batch of data, including both manufacturing and services PMI for November, pointing at 49.9 (prior: 50), the first contraction in over three years, and 49.5 (prior: 50.1), the fourth decline of the year, followed by 3Q construction work falling by 0.40% (prior: -2.80%), although in improvement thanks to higher non-residential constructions activities, does not support AUD. Implied probability for a first Cash Rate cut in 2020 to 0.50% from the RBA on 4 February 2020 is now up 66% from 39.70% after the release of the Minutes from the November monetary policy meeting.
