Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Another dovish domino falls
Kay Van-Petersen
Global Macro Strategist
Summary: Gloom appears to be in vogue: New Zealand's central bank took the markets by surprise and joined the ever-swelling ranks of dovish central bankers.
That the market was surprised by today's dovish turn by the Reserve Bank of New Zealand can clearly be seen in the ensuing price action, which saw USDNZD drop 1.61% to 0.6797 and AUDNZD rise 1.06% to 1.0440 in the Asian afternoon.
The central bank indicated that the most likely direction of its next rate move would be down, saying also that: “The risks of a more pronounced global downturn has increased and low business sentiment continues to weigh on domestic spending.”
So we are already seeing AUDUSD swing into focus (0.7100, down 0.50% today) as the market starts to ponder the Reserve Bank of Australia's rate decision on Tuesday next week. The combination of the Federal Reserve and European Central Bank capitulations is likely causing another race to the bottom similar to what we had prior to the Fed hiking cycle.
To stand still is to move ahead in this world… as neutral under a hiking Fed is very different from neutral under a Fed that is done hiking and is sending out dovish signals.
While the AUDNZD tactical call was purely over the RBNZ decision – i.e. New Zealand domestic fundamentals trump Australian domestic fundamentals (hence why we were continuing to make lower lows in the cross even up to just earlier this week on Monday). So we can easily see this cross reversing back to 1.0300 and potentially looking to test the recent 1.0276 lows. And this could even happen before the RBA meeting!
The central bank indicated that the most likely direction of its next rate move would be down, saying also that: “The risks of a more pronounced global downturn has increased and low business sentiment continues to weigh on domestic spending.”
So we are already seeing AUDUSD swing into focus (0.7100, down 0.50% today) as the market starts to ponder the Reserve Bank of Australia's rate decision on Tuesday next week. The combination of the Federal Reserve and European Central Bank capitulations is likely causing another race to the bottom similar to what we had prior to the Fed hiking cycle.
To stand still is to move ahead in this world… as neutral under a hiking Fed is very different from neutral under a Fed that is done hiking and is sending out dovish signals.
While the AUDNZD tactical call was purely over the RBNZ decision – i.e. New Zealand domestic fundamentals trump Australian domestic fundamentals (hence why we were continuing to make lower lows in the cross even up to just earlier this week on Monday). So we can easily see this cross reversing back to 1.0300 and potentially looking to test the recent 1.0276 lows. And this could even happen before the RBA meeting!
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