Monday, May 5, 2014

AUDNZD fulfills its promise to the downside | PMIs are more important than ever

On April 30th we discussed the possibility of a downtrend forming in the AUDNZD pair, by price breaking through the support that existed at that time where it met the 200 period Simple Moving Average on the four-hour chart, and forming a new lower low.

Since then it has done all that might have been expected of it in this respect. It has been helped by decisions taken by the monetary authorities in both New Zealand and Australia: the Kiwis raised core interest rates and the Aussies kept them on hold.

There is now considerable discussion taking place in Australia about the forthcoming national budget, which is expected to introduce a level of austerity that has hitherto not been known in that country. It can be expected that the government cutting spending power in this way will possibly lead the Reserve Bank to take on an easing rather than a neutral bias, as at present. This could further weaken the Australian dollar. AUDNZD may have further to fall from here.

PMIs are more important than ever

Today sees the publication of the Purchasing Managers’ Indexes for a number of EU countries. While these are always important they have an added edge on this occasion, as the European Central Bank (ECB) will be watching all such indicators to see if there is scope for a further lowering of the core interest rate, or some other easing measures, when it makes its monthly monetary policy statement this coming Thursday.

There is considerable concern in the ECB about the threat of low or even negative inflation (deflation) in the Euro zone. While all the signs indicate that the ECB would take measures that would increase inflation, this is opposed by the powerful German Bundesbank, and by the German political establishment. The outcome of this tussle is worth watching.

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