EM weakness likely to pressurize AUD and NZD – RBS

FXStreet (Delhi) – Melinda Burgess, Research Analyst at RBS, notes that the recent emerging market weakness and subpar global growth are likely to pressurize NZD and AUD and we can witness further depreciation in these currencies.

Key Quotes

“RBA noted China concerns in its statement last week but stuck to a view of moderate economic expansion. Still, the economy has slowed more than RBA expected and lower commodity prices, plus weaker capex, pose significant headwinds.”

“The weaker AUD is doing some of the policy easing work but this can bring higher inflation which is already close to target. Governor Stevens has acknowledged that potential growth may be lower than earlier thought and hence RBA may be hesitant to ease again. It may need to see unemployment rise further so this week’s labour market report is important.”

“In contrast, further policy easing and more jawboning the currency lower is expected from RBNZ this week. Key underlying measures of inflation are declining and significantly undershooting target. RBNZ called for a weaker currency at its July meeting but the 4% fall in trade weighted terms since may not be sufficient.”

“Faced with lower commodity prices, EM currency weakness and weak global growth we expect further FX depreciation for AUD and NZD. We stay short both currencies against the USD.”

Melinda Burgess, Research Analyst at RBS, notes that the recent emerging market weakness and subpar global growth are likely to pressurize NZD and AUD and we can witness further depreciation in these currencies.

(Market News Provided by FXstreet)