The Australian and New Zealand Dollars rebounded from early losses to post solid gains for the week. Short-covering and aggressive counter-trend buying helped boost the Forex pairs, mostly in response to the positive comments from China President Xi Jinping and an easing of the geopolitical risks amidst recent Syria conflict tensions.
Initially, investors showed a negative response to the hawkish Fed minutes on April 11, but that was offset during the April 12-13 time period because of increased demand for risky assets, led by a surge in global equity markets.
There were no major reports out of Australia last week, but Reserve Bank of Australia Governor Philip Lowe did say he sees little justification for a near-term adjustment in rates, but still thinks the next move is likely to be higher rather than lower. Lowe also said an increase will likely shock a few borrowers, but pointed out when it comes it will likely be because the economy is strengthening.
Minor reports included the AIG Construction Index which came in at 57.2 versus 56.0, NAB Business Confidence which posted a reading of 7 versus 9. Westpac Consumer Sentiment was 0.6% versus 0.2%, MI Inflation Expectations dipped a little to 3.6% from 3.7% and Home Loans fell 0.2% versus a forecast of -0.3%.
In its RBA Financial Stability Review, the central bank said record low interest rates, accelerating asset prices and a growing appetite for risk could be laying the groundwork for a sharp correction across financial markets.
The RBA said strong global economic conditions over the past six months suggests asset prices have surged because investors “see little chance of adverse outcomes”.
However, the RBA warns that a sharp rise in interest rates from rising inflation could cause a shock and catch investors by surprise.
“A detrimental shock could lead to a disruptive and lasting correction in a broad range of markets,” the RBA said.
Increased demand for higher risk was the primary driven of the New Zealand Dollar with the currency bid almost the entire week.
Investor sentiment is likely to continue to be the focus this week for the Aussie and the Kiwi. The response by investors to the US-led missile attack on Syria will largely determine the price action as well as any retaliation by Syria and its allies Iran and Russia.
Traders will also get the opportunity to respond to several key U.S. economic reports including Retail Sales and Building Permits.
On Tuesday, the RBA will release its Monetary Policy Meeting Minutes. On Thursday, the latest jobs market data will be released with the Employment Change report expected to show the economy added 20.3K jobs in March. The unemployment rate is expected to dip to 5.5%.
Looking ahead to this week, New Zealand Dollar investors will get to react to the dairy auction and domestic inflation data. Economists expect the data to show a 0.5 percent lift in quarterly inflation and for annual inflation to run at about 1.1 percent.
This article was originally posted on FX Empire
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