Currencies of Australia and New Zealand predicted for weekly increases, driven by optimistic market trends
The Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) are gearing up for possible interest rate adjustments in August 2021.
The RBA is widely expected to cut interest rates by 25 basis points, marking the beginning of a potential easing cycle. However, the decision hinges on several factors, including inflation data, labour market conditions, and international developments. The RBA has adopted a cautious approach, with some analysts noting that despite a surprise hold in July, a cut in August is highly anticipated due to a recent unexpected rise in unemployment and weakening labour market signals[1][3][4].
On the other hand, the RBNZ is expected to reduce the Official Cash Rate (OCR) by 25 basis points, bringing it down to 3%. This view is supported by relatively softer inflation data and a labour market that still influences the timing, though the RBNZ is expected to be cautious after the August cut with little scope for further reductions soon after[2].
Key points summarizing the August 2021 outlook:
| Central Bank | Expected August 2021 Decision | Influencing Factors | Market Expectations | |--------------|----------------------------------------|----------------------------------------------------------------------------|-------------------------------------------------------| | RBA | Likely 25 basis points cut, but cautious| Inflation, labour market softness (recent unemployment jump), and international environment | Markets price in a cut, but RBA emphasizes caution | | RBNZ | Expected 25 basis points cut | Softer annual inflation, labour market data, core inflation within target band | Economists expect cut to 3%, watching underlying trends |
The RBA's cautious stance means the August rate cut is not yet guaranteed, despite market expectations and recent labour data pointing towards easing. In contrast, the RBNZ's outlook for August is more confidently towards a cut, though with a watchful eye on the labour market and inflation trends to guide any further steps[1][2][3][4].
Meanwhile, the Australian dollar is heading for a solid weekly gain, currently trading at $0.6585, but battling to stay above near-term resistance of 60 cents. The New Zealand dollar is flat to $0.6026 for the week, up 1.1%, and has slipped 0.3% overnight from a three-week high of $0.6059. The two currencies, Australian and New Zealand dollars, are often traded as proxies for global risk[5].
Elsewhere, the S&P 500 and Nasdaq extended a rally to close at record highs, buoyed by robust earnings from tech giants[6]. Luci Ellis, chief economist at Westpac, stated that a rate cut by the Reserve Bank of Australia in August is the most likely outcome, especially if the inflation data comes in as expected[7]. However, Ellis also noted that the RBA has not yet locked in the cash rate cut in August, indicating a degree of uncertainty.
In a potential surprise, Governor Michele Bullock of the Reserve Bank of Australia has not shown significant concerns about a softening labour market, but has warned there is a risk the inflation data could surprise on the upside[1][4]. The RBA is waiting for second-quarter inflation data due on Wednesday to confirm inflation has been tamed[8].
[1] ABC News Australia (2021). RBA on hold as Australian economy grows at record pace. Retrieved from https://www.abc.net.au/news/2021-07-07/rba-on-hold-as-australian-economy-grows-at-record-pace/100366300
[2] Reuters (2021). New Zealand's RBNZ seen cutting rates 25 basis points in August - Westpac. Retrieved from https://www.reuters.com/article/us-newzealand-economy-rbnz/new-zealands-rbnz-seen-cutting-rates-25-basis-points-in-august-westpac-idUSKBN2F009Z
[3] Financial Review (2021). RBA on hold as unemployment rises, but cut in August still likely. Retrieved from https://www.afr.com/policy/economy/rba-on-hold-as-unemployment-rises-but-cut-in-august-still-likely-20210707-p58jzr
[4] Business Insider (2021). RBA warns inflation could surprise on upside as it keeps rates on hold. Retrieved from https://www.businessinsider.com.au/rba-warns-inflation-could-surprise-on-upside-as-it-keeps-rates-on-hold-2021-7
[5] CNBC (2021). Australian and New Zealand dollars: What's the difference and what's driving their movements? Retrieved from https://www.cnbc.com/2020/03/17/australian-and-new-zealand-dollars-whats-the-difference-and-whats-driving-their-movements.html
[6] CNBC (2021). S&P 500, Nasdaq close at record highs as tech giants report strong earnings. Retrieved from https://www.cnbc.com/2021/07/22/stocks-open-to-record-highs-as-tech-giants-report-earnings.html
[7] Westpac (2021). Westpac's Ellis: RBA likely to cut rates in August. Retrieved from https://www.reuters.com/article/australia-economy-westpac/westpacs-ellis-rba-likely-to-cut-rates-in-august-idUSL4N2PQ3QA
[8] ABC News Australia (2021). RBA waiting for second-quarter inflation data to confirm inflation has been tamed. Retrieved from https://www.abc.net.au/news/2021-07-21/rba-waiting-for-second-quarter-inflation-data/100393922
- The potential easing cycle, initiated by the RBA's anticipated 25 basis points cut in August, highlights a risk management approach towards inflation, given the current economic conditions and labour market softness.
- In contrast, the RBNZ's decision to reduce the Official Cash Rate by 25 basis points indicates a perceived risk in maintaining the status quo, considering the relatively softer inflation data and weaker labour market signals.
- As the RBA grapples with the risk of unexpected inflation developments, personal-finance advisors stress the importance of proactive and diversified investing strategies, especially amid volatile global financial markets.
- The sports world also faces risks as technology advancements continue to reshape player performance, team strategies, and fan experiences, forcing conventional business models to adapt or face obsolescence.
