AUD/USD weekly outlook: AUD/USD, AUD/NZD vulnerable to a pullback

It could be a quieter start to the week than usual with both China and Australia on public holiday. There is also little in the way of data until Tuesday when the RBA minutes are released alongside ANZ job advertisements and NAB’s business conditions survey. But even then, I doubt these events will make a material impact on the RBA’s monetary policy decision any time soon.

There were few changes to the RBA’s September statement, and even if the monthly inflation report had already been released (it arrived the following day), trimmed mean inflation remains well above target. And that means the RBA’s 4.35% cash rate is likely here to stay.

The RBNZ could cut their cash rate by 50bp on Wednesday

That would send their cash rate down to 4.75%, and economists are also backing another 50bp in December. Traders should therefore pay attention to whether the RBNZ signal aggressive cuts next week, as this could mean the RBNZ’s cash rate could be beneath the RBA’s for the first time since the Pandemic. And that could prompt more political pressure on the RBA to cut rates here.

However, expectations require fulfilling to avoid disappointment. And given AUD/NZD has risen each day this week and currently up 1.5%, it could be vulnerable to a selloff if the RBNZ surprise with a not-so-dovish cut. This could either mean a 25bp cut, ort 50bp cut with no promise of such levels of easing this year.

Also note that the rally on AUD/NZD has stalled near the May high, so perhaps this cross could be in for a pullback before its heads for 1.11 and the July high.

An array of Fed speakers are hitting the wires throughout the week

I suspect they’ll continue to gently let markets down regarding another 50bp cut this year. With that said, I am writing this ahead of another highly anticipated NFP report. But it could take a particularly weak set of employment numbers for the Fed to gain the appetite to cut by 50bp, whereas odds favour slightly softer (and not recessionary) figures. Should they come in hot, then we could see the USD index extend its rally into a fifth day and weigh further on AUD/USD.

US CPI is the main event for the week

CPI could shape expectations for whether the Fed cut by 50bp in December or not, unless today’s NFP report is so compelling it seals the deal (spoiler – I don’t think NFP figurers will decide that fate). Core PCE came in below expectations, and if that is tracked lower by core CPI then I expect USD bears will regain confidence, and that could bolster support for AUD/USD.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge