[Pimpllus]

Both the AUD and NZD have appreciated in recent sessions, alongside the rally in commodity prices. We expect further appreciation over the next few months but think that local events over the next day will provide an opportunity to buy these currencies at better levels. The Australian labour market report is released tomorrow (02:30 BST) and market is looking for a decline in employment by 35K jobs and a rise in the unemployment rate to 5.7%. The risk however is for a larger than consensus fall in employment in the event that the data play catch up with very weak labour demand indicators.

In New Zealand, market economists are divided down the middle over whether the RBNZ will cut rates by 25bp or remain on hold (22:00 BST today). The bills market is pricing a cut of 9bp. We think that the combination of persistently weak domestic data and the stronger exchange rate will cause the RBNZ to cut rates by 25bp and also talk down the currency. As with the AUD, this would present an opportunity to buy the NZD/USD, with the better outlook for global growth and commodity prices likely to eventually offset the downside news from the RBNZ.

[AndrewWoo]

The overall theme for investors looking at Australia remains one of economic resilience and outperformance. The OIS market indeed in the past week (post-US payrolls) now declares the “next move is up” for Australian cash rates. A 50% chance of +25bp within the year is currently priced in. Nevertheless, the more bearish stance on the AUD and the economy remains intact. The expectation for data disappointment – especially in the labour market – is expected to revive RBA easing expectations. Some maintain that the AUD will depreciate by around 5% within the next three months, to $US0.76. While this view (RBA easing, AUD depreciation from current levels) remains unchanged, the transmission mechanism is merely taking longer than expected, and hence the recent rise of the AUD is viewed as a classic “overshoot”.