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AUD/NZD reversed course in Asia on Tuesday, rising towards one-week highs in the 1.0990 area in reaction to upbeat Chinese data. Following the Reserve Bank of Australia decision, the Australian dollar strengthened slightly per day, rising to around the 1.1030 area with little fluctuation.
Data released earlier on Tuesday showed that business activity in China’s services sector expanded at the fastest pace in three months in October, with the Caixin/S&P Global Services Purchasing Managers’ Index rising to 52 from 50.3 in September. This matches the official purchasing managers’ index released last week and can be seen as an early signal that China’s massive economic stimulus will help improve the business environment, thus boosting the Australian dollar.
On the other hand, the New Zealand dollar (NZD) continued to perform relatively subdued as the market continued to bet on more aggressive interest rate cuts by the Reserve Bank of New Zealand (RBNZ). The Reserve Bank of New Zealand’s semi-annual Financial Stability Report reconfirmed this expectation, noting that economic indicators remain challenging and warning of the negative impact of geopolitical tensions on the economy.
The report further pointed out that the rise in unemployment is beginning to cause serious financial difficulties for some families. In addition, New Zealand Reserve Bank President Adrian Orr said that the development of the real economy lags behind the decline in interest rates. Meanwhile, the Reserve Bank of Australia decided to keep the cash rate unchanged at 4.35% and was hawkish on the outlook, but the much-anticipated rate decision failed to impress AUD bulls, nor did AUD/NZD Brings significant push.
At the press conference after the meeting, Reserve Bank of Australia Governor Bullock reiterated that there are still upward risks to inflation and the current interest rate policy needs to remain restrictive. This, in turn, suggests that the path of least resistance for AUD/NZD remains to the upside. Investors now look ahead to Wednesday’s quarterly employment report, which could determine the pair’s near-term trajectory.
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