Risk off sentiment continues to dampen outlook for aussie

After posting a small 20 pip loss last week, the NZD/USD pair managed to gain traction yesterday and advanced to its highest level since mid-May at 0.6591. The rise in both the aussie and kiwi dollar surprised markets after tariff worries pushed stocks lower, as the “risk off” sentiment continues.

The main factor driving the AUD and NZD is the state of global risk appetite, especially in relation to the outlook for Chinese growth. This includes trade war dynamics between the US and China.

A more general tone of risk aversion is prevalent in financial markets, which is expected to continue. China is now threatening to stop exports of rare-earth metals to the US, since already stopping the import of soybeans, causing a huge problem for farmers in the Midwest.

RBA expected to cut rate to historic low of 1.25%

The RBA is widely expected to drop the cash rate to 1.25% today, in an attempt to lift employment conditions and preserve its inflation target. Since August 2016 rates have been unchanged at 1.5%, and while the banks will be under pressure to pass on any RBA cut in full, some experts are sceptical that they will, as banks continue to look for ways to recover loss profit margins eroded by previously high funding costs.

Australian retail sales are first on the agenda, (11:30 AEST) expected to come in at 0.2%, before the all-important decision at 14:30, with the accompanying RBA statement.