Market Outlook Archive

Press Conference UPDATE :

Key Hawkish Comments:

"A further cut in December is not a foregone conclusion, far from it"

Translation: December cut probability should DROP significantly from 89.8%

1. December Cut Uncertainty

- "Strongly differing views" on December

- "Not a foregone conclusion, far from it"

- Market Impact: December cut now 50/50 at best (was 89.8%)

2. Economy Firmer Than Expected

- "Data from before shutdown show economy could be firmer"

- Suggests less need for aggressive easing

3. Tariff Concerns

- "Higher tariffs are pushing up some goods prices"

- Could make Fed pause to assess inflation impact

- "Could be more persistent" = inflation risk

4. Balanced Stance

- "Took a more-neutral stance" on employment risks

- Confirms our read: risks stabilized, not escalating

Updated Assessment:

Original (Statement Only): Hawkish, USD +0.2% to +0.4%

After Powell: Confirmed and even more Hawkish, USD +0.4% to +0.6%

Why More Hawkish:

1. ✅ December cut "far from" certain = major repricing event

2. ✅ Economy firmer than expected

3. ✅ Tariff inflation concerns = pause risk

4. ✅ "Strongly differing views" = no consensus to cut

Market Implications:

Before Powell:

- December 25bp: 89.8% priced

After Powell:

- December 25bp should reprice to: ~50% or lower

- Terminal rate expectations: HIGHER

- USD: Stronger vs all currencies

Trading:

- Long USD aggressively (vs EUR, JPY especially)

- Sell December cut probability (if you have access to OIS markets)

- Steeper yield curve (less front-end cuts priced)

Final Verdict:

Fed is nearing end of easing cycle much faster than market expects.

Powell essentially said: "We might not cut in December, and we're debating it heavily."

This is massively hawkish relative to 89.8% market pricing.

USD target revised UP to +0.5% to +0.8% from statement/Powell combined.

After FOMC Statement(Pre Press Conference)

Decision: October 30, 2025 | 25bp cut to 3.75-4.00%

The Verdict: Hawkish Cut

Fed delivered the expected 25bp cut but with hawkish forward guidance suggesting employment risks have stabilized.

Expected USD Impact: slightly bullish

Key Changes from September

What Matters Most

1. Past Tense = Risks Stabilizing

September: "downside risks to employment have risen" (ongoing concern)

October: "downside risks to employment rose in recent months" (past event, now stable)

Implication: Fed sees labor market stabilizing, not deteriorating further. Supports fewer future cuts.

2. "Consistent" = No Further Weakening

October added: "more recent indicators are consistent with these developments"

Translation: Latest data confirms slowdown isn't accelerating. Employment picture unchanged since September.

3. Schmid's Hawkish Flip = Major Signal

September: Schmid voted FOR 25bp cut (4.00-4.25% → 3.75-4.00%)

October: Schmid voted AGAINST, wanted to HOLD at 3.75-4.00%

Why This Matters:

• Schmid supported easing just 6 weeks ago

• Now believes Fed should pause at current level

• Suggests he views 3.875% (midpoint) as at or near the 3.0% neutral rate

• This is a very hawkish shift in just one meeting

Vote Breakdown:

• Dovish dissent: Miran wanted 50bp (more aggressive easing)

• Hawkish dissent: Schmid wanted hold (pause already) — NEW

Implication: Growing FOMC sentiment that Fed is approaching end of easing cycle.

Match to Pre-Committed Scenario

Scenario Occurred: 25bp cut + hawkish guidance (approaching neutral)

Pre-Committed USD Impact: +0.2% to +0.4%

Why Hawkish:

• Employment risks described in past tense (no longer rising)

• Recent data "consistent" = not deteriorating

• Schmid flipped from supporting cut to wanting hold = major hawkish shift within FOMC

• Suggests Fed believes it's nearing 3.0% neutral rate

What We're Waiting For

1. Economic Projections (Dot Plot)

Key Question: Does 2025 year-end projection stay at 3.6% or move?

• 3.75% (no December cut) = Very hawkish, confirms our read

• 3.6% (one more 25bp) = Neutral, one more cut as previously planned

• 3.4% or lower = Dovish, more cuts than September

2. Powell Press Conference (2:30 PM EDT)

Watch for:

• "Are we approaching the 3.0% neutral rate?" (hawkish if yes)

• "Could you pause at the next meeting?" (hawkish if open to it)

• How does he explain the past-tense employment language?

Relative to Market Pricing

What was priced: 25bp cut (96.7%), then 89.8% for another 25bp in December

What we got: 25bp cut + language suggesting employment risks stabilized

• December cut probability drops from 89.8%

• Terminal rate expectations rise slightly

• USD strengthens vs EUR, JPY

Key Takeaways

1. 25bp cut delivered as expected (96.7% priced)

2. Forward guidance is hawkish — past-tense employment risks = stabilized

3. Schmid's hawkish flip — voted FOR cut in September, now wants HOLD

4. Schmid's dissent may imply Fed nearing 3.0% neutral at current 3.875% rate

5. Expected USD: somewhat bullish on statement alone

6. Powell at 2:30 PM — could amplify or moderate hawkish interpretation

China Export Restrictions on Rare Earths & Battery Materials Trigger Historic Selloff - S&P 500, AUD, USD, Gold, Oil

What Happened: President Trump announced a new 100% tariff on all Chinese imports (on top of existing 30% tariffs) starting November 1st, in response to China's export controls on rare earth metals and battery materials. Markets plunged in the worst selloff since April.

Understanding China's Export Controls

What Are Rare Earth Metals & Why Do They Matter?

Simple answer: Rare earth metals are 17 special elements that are absolutely essential for making high-tech products. China controls about 70% of global supply and 90% of processing.

Think of it like this: China controls the only ingredients for the recipe, and there are no substitutes. If they stop selling, production stops.

What Gets Affected?

• Your phone & laptop: Displays, speakers, batteries all need rare earths

• Electric vehicles: EV motors use powerful magnets made from rare earths

• Military equipment: F-35 fighter jets, missiles, radar systems

• Wind turbines & solar panels: The entire green energy transition depends on these materials

• Medical devices: MRI machines, X-ray tubes

What's China Restricting?

Why This Is So Serious:

1. No quick alternatives: Even if you find the raw materials elsewhere, only China can process them. Building new facilities takes 5-7 years.

2. No substitutes exist: These materials have unique properties that can't be replicated with other elements.

3. Everything depends on them: From smartphones to fighter jets to wind turbines—production stops without these materials.

Bottom line: This isn't like a tariff that makes things more expensive. This is China potentially cutting off access to materials with no alternatives, threatening at least a near-term shut down of entire industries.

The Escalation Timeline

October 9, 2025: China Strikes First

• Rare Earth Controls: China announces export restrictions on 12 of 17 rare earth metals (effective Dec 1)

• Battery Tech Controls: Export controls on lithium batteries (≥300 Wh/kg) and graphite anode materials (effective Nov 8)

• Rationale: "National security interests" and dual-use concerns(basically, this means these materials can be used also for military)

October 10, 2025: Trump Responds

• 100% Tariff Announced: "Over and above any Tariff they are currently paying" (currently 30%)

• Effective Date: November 1st "or sooner depending on further actions by China"

• Additional Measures: US will also "impose Export Controls on any and all critical software"

• Trump Quote: Called China's move "unprecedented" and "a moral disgrace"

Market Impact: The Damage Report

Why the Market Reacted So Strongly

1. Effective Tariff Rate: 130% Total

The new 100% tariff is additive to existing 30% tariffs:

• Current tariffs: 30%

• New tariffs: +100%

• Total effective rate: 130%

This makes Chinese imports economically unviable for most products.

2. Short Timeline = Limited Negotiation Window

• Implementation: November 1st (21 days away)

• Caveat: Could be "sooner" if China acts further

• Markets see this as genuine threat, not negotiating bluff

3. China's Strategic Exports = Critical Vulnerabilities

Rare Earth Metals (China controls 70% of US supply):

• Defense: Precision-guided missiles, fighter jets, radar

• Tech: Smartphones, EVs, medical imaging

• Energy: Wind turbines, solar panels

Battery Materials (China dominates global production):

• High-energy lithium batteries (≥300 Wh/kg)

• Graphite anode materials (90%+ global market share)

• Cathode precursors (nickel-cobalt-manganese)

4. AUD Hit Hardest Among Major Currencies

Why AUD plunged ~1% to one-month lows:

• China Trade Proxy: Australia's largest trading partner (35% of exports go to China)

• Commodity Exposure: Iron ore, coal, LNG demand heavily tied to Chinese growth

• Risk-Off Sentiment: High-beta currency suffers in global uncertainty

• Largest Weekly Drop Since March: AUD/USD on track for worst week in 7 months

What This Means

Immediate Impact (Next 3 Weeks)

• Negotiation Window: Both sides have until Nov 1 to de-escalate or make a deal

• Volatility Spike: Expect elevated VIX and currency swings as headlines drive sentiment

• Stockpiling Accelerates: Companies rush to import before tariffs hit

• Supply Chain Chaos: Businesses scramble to source alternatives or absorb costs

Medium-Term (Nov-Dec 2025)

• Inflation Pressure: 130% tariffs = massive price increases on consumer goods

• Growth Slowdown: Supply disruptions + higher costs = stagflation risk

• Corporate Earnings Hit: Margin compression for companies reliant on China imports

• Fed Policy Dilemma: How to respond to tariff-driven inflation + growth slowdown?

Long-Term Implications

• Deglobalization Accelerates: US-China economic decoupling now inevitable

• Supply Chain Realignment: Friend-shoring to Vietnam, Mexico, India gains urgency

• Technology Bifurcation: Separate US and China tech ecosystems emerge

• Strategic Competition: Trade war becomes permanent feature of geopolitics

What Traders Should Watch

Key Dates & Events

Data & Indicators to Monitor

1. Negotiation Signals

• Trump/Xi Communication: Any announcement of calls or meetings = positive for risk assets

• Treasury Secretary Statements: Bessent's tone on negotiations (pragmatic vs hardline)

• Chinese Foreign Ministry: Escalation rhetoric vs willingness to talk

2. Fed Policy Signals

• FOMC Member Speeches: How does Fed view tariff-driven inflation vs growth slowdown?

• Fed Funds Futures: Are markets pricing more cuts (growth concern) or fewer (inflation concern)?

• Inflation Expectations: 5Y/5Y forward breakevens show long-term inflation views

Trading Scenarios

Scenario 1: Deal Made Before Nov 1 (30% Probability)

Catalyst: Trump/Xi announce compromise - tariffs paused, China scales back export controls

Scenario 2: Tariffs Implemented, No Deal (50% Probability)

Catalyst: Nov 1 arrives, 100% tariffs go into effect

Scenario 3: Partial De-escalation (20% Probability)

Catalyst: Tariffs reduced to 25-50% (not 100%), China exempts some rare earths

Why "No Deal" Gets the Highest Probability (50%)

The timing is the tell: Only 21 days from announcement to implementation leaves almost no room for traditional negotiations. Both sides have already taken concrete actions not just threats. When leaders give short public deadlines, they box themselves in—backing down looks weak. This isn't a negotiating tactic; it's a commitment trap. Trade deals take months, not weeks, and there's no middle ground between abandoning rare earth leverage and dropping 100% tariffs.

Bottom Line

Key Takeaways for Traders

1. Elevated Volatility is the New Normal: Headline risk dominates until Nov 1. Position size accordingly.

2. AUD is the Cleanest China Trade Proxy: Long AUD on de-escalation headlines, short on escalation.

3. Gold Rally Has Room to Run: If tariffs implemented, $4,200-$4,300 target is realistic.

4. Oil Faces Structural Headwinds: Trade war + China slowdown = demand destruction.

5. This is NOT a Negotiating Tactic: Unlike past threats, both sides have taken concrete policy actions (export controls, tariff threats). Assume implementation unless proven otherwise.

The clock is ticking: 21 days until Nov 1. Watch for negotiation signals, but prepare for the worst. Markets will remain volatile until clarity emerges.

THE DECISION: OCR cut 50bp to 2.5% | Forward guidance: "remains open to further reductions"

The RBNZ delivered a larger-than-consensus cut, choosing aggressive easing over gradualism. This matched our Dovish Scenario 1 prediction (25% probability). Here's how the actual statement compared to our preview analysis:

1. Accuracy Check: What We Got Right

The statement provides remarkable detail about the Committee's deliberations, confirming the exact debate we anticipated: gradual 25bp approach vs. front-loaded 50bp move.

2. Which Scenario Occurred?

Dovish Scenario 1: 50bp Cut + Continued Easing Signal

Our Prediction: 25% probability

Market Consensus: 55% expected 25bp, 40% expected 50bp

Reality: RBNZ chose the aggressive path

Why This Scenario Won:

• "Prolonged spare capacity" - Committee emphasized downside risks to activity

• "Downside risk to medium-term activity and inflation" - worried about undershooting

• "Excess precaution by households and businesses" - exact concern we identified

• "Clear signal that supports consumption and investment" - aggressive cut as stimulus signal

Interestingly, the RBNZ's reasoning closely mirrors our "Dovish Scenario 1" logic, not the "50bp + pause" variant. The statement explicitly signals openness to continued easing, not a pause to assess.

3. Key Statement Analysis

On GDP Weakness:

Our Preview Said:

"GDP contracted three times worse than RBNZ projected (-0.9% vs -0.3%)"

RBNZ Statement Said:

"Contraction in GDP in Q2 2025 was considerably larger than expected"

But added nuance: "Unusually large seasonal balancing item... expected to be reversed"

Key Insight: The RBNZ partially downplayed the GDP shock by citing technical factors (seasonal adjustment, industry-specific supply constraints). However, they still cut 50bp, suggesting they're erring on the side of caution.

On Inflation:

Our Preview Said:

"Inflation clearly temporary - food/admin prices driving spike, core declining"

RBNZ Statement Said:

"Headline inflation reflects large increases in administered prices, food prices... Excluding administered prices, non-tradables inflation has continued to decline"

✓ Perfect match

On Forward Guidance:

Our Dovish Scenario 1 Predicted:

"The Committee expects further reductions in the OCR will be needed"

Actual Statement:

"The Committee remains open to further reductions in the OCR as required"

Assessment: Slightly softer than our predicted language ("open to" vs "expects"), but still clearly dovish. Keeps door open for November cut.

The Committee's deliberation section is particularly revealing - it shows the exact 25bp vs 50bp debate we anticipated, with the 50bp camp winning on concerns about "prolonged spare capacity" and "excess precaution."

4. Likely Market Implications

Forward Pricing Implications:

• November Meeting: Likely 25bp cut (possibly on hold if Sep Q data surprises positive)

• Terminal Rate: Now pricing ~2.0% to 2.25% (lower than August MPS projection of 2.6%)

• Total Easing: 350bp from peak (5.5% → 2.5%), with potentially 25-50bp more to come

The "remains open to further reductions" language suggests the easing cycle isn't done. With the OCR at 2.5%, the RBNZ is approaching neutral but signaling they may need to go below neutral if weakness persists.

5. What to Watch Next

The RBNZ's decision framework is now clear. For the November 27 meeting, watch these data points:

Given the Committee's emphasis on "prolonged spare capacity" and "excess precaution," they'll be watching confidence indicators and employment data closely. A weak Sep Q labour report would strongly suggest another 25bp cut in November.

6. Bottom Line

1. The RBNZ chose front-loading over gradualism

Getting to 2.5% in one meeting (vs two 25bp cuts) reflects concern about economic momentum, not just inflation.

2. The easing cycle is NOT over

"Remains open to further reductions" signals at least one more cut likely (November or February).

3. The Committee is more worried about undershooting than overshooting

Their revealed preference: risk erring on the side of too much easing rather than too little, given "prolonged spare capacity."

4. Our preview identified the right scenario, but underweighted it

Dovish Scenario 1 played out exactly as predicted (50bp + continued easing).

5. Watch Sep Q CPI (Oct 16) for November decision clues

If CPI comes in at 2.9% or below, strengthens case for another cut. If 3.1%+, RBNZ may pause to reassess.

The Surprise Factor

While markets priced 40% for 50bp, the real surprise is the dovish forward guidance. The RBNZ didn't pair the 50bp cut with "pause and assess" language. Instead, they explicitly kept the door open for more cuts, signaling terminal rate expectations should move lower.

Translation: We're not just catching up to neutral—we might need to go below neutral if spare capacity persists.

Meeting: October 7, 2025 @ 2:00 PM NZDT | Current OCR: 3.00% | Last Change: -25bp (Aug 20)

Market Consensus

Base Case: 25bp cut to 2.75% (55% probability)

Rising Risk: 50bp cut to 2.50% (40% probability)

The biggest development since the August meeting has been the shocking GDP release. Here's what changed:

1. The GDP Shock

Key Point: Economy contracted three times worse than RBNZ projected just 6 weeks ago.

Beyond the quarterly GDP data, more timely indicators paint a mixed picture of the economy's current state:

2. High-Frequency Indicators

Balance: Broad weakness with only modest recovery signs in retail and employment ads.

Here's where it gets tricky for the RBNZ: they're making this decision without key quarterly data:

3. Critical Data Gaps

Challenge: RBNZ must decide without two critical quarterly data releases.

Given the data we have—and what's missing—here's how markets are pricing the decision:

4. Decision Scenarios

While a 25bp cut remains the baseline, the case for a larger move has strengthened considerably:

5. Why 50bp Is Increasingly Likely

1. Massive GDP Miss: -0.9% vs -0.3% is a major forecasting error

2. Broad Weakness: Manufacturing, services, consumer confidence all deteriorating

3. No Recovery Despite 250bp of Cuts: OCR fell from 5.5% to 3.0%, yet weakness persists

4. Inflation Clearly Temporary: Food/admin prices driving spike, core inflation declining

5. Risk of Falling Behind: Gradual approach may be too slow given economic fragility

Regardless of the rate decision, the language in the statement will signal the RBNZ's medium-term intentions. Watch for these key phrases:

6. Key Statement Watch Points

The Monetary Policy Statement will include updated economic projections. Given recent data, expect material downgrades:

Now let's break down how tomorrow could unfold. The decision itself matters less than the combination of rate move + forward guidance. Here are the four main scenarios and how to distinguish them:

7. Likely Scenarios & How They Could Differ

Base Scenario (Most Likely): 25bp Cut to 2.75%

Probability: ~55%

The Decision: OCR reduced 25bp to 2.75%

The Statement:

• "Further OCR reductions are likely as we move toward neutral settings"

• Acknowledges GDP weakness but emphasizes gradual approach

• Notes Sep Q inflation/labour data not yet available

• Maintains inflation back to midpoint in 2026

The Press Conference:

• Governor Orr emphasizes data-dependency

• Balanced tone: concerned but not alarmed

• Suggests November could be 25bp or 50bp depending on data

Market Impact: Minimal (already priced).

Why This Makes Sense: RBNZ historically prefers gradualism. With Sep Q CPI/labour data unavailable, justifies measured approach while leaving door open for larger November cut.

Dovish Scenario 1: 50bp Cut + Continued Easing Signal

Probability: ~25%

The Decision: OCR reduced 50bp to 2.50%

The Statement:

• "Economic conditions have deteriorated more than expected, requiring a more substantive policy response"

• "The Committee expects further reductions in the OCR will be needed"

• GDP forecast downgraded to -1.3% to -1.5% for 2025

• OCR trough projection lowered to ~2.25%

The Press Conference:

• Governor Orr: "We're still above neutral and need to get there faster"

• Emphasizes risk of inflation undershooting medium-term

• Signals likely 25bp cuts in November and February

Market Impact: NZD negative, Equities positive.

Why This Makes Sense: If RBNZ views GDP miss as signaling deeper weakness requiring aggressive response. Continued easing guidance helps avoid inflation undershooting.

Dovish Scenario 2: 50bp Cut + "Pause" Signal (Front-Loading Strategy)

Probability: ~15%

The Decision: OCR reduced 50bp to 2.50%

The Statement:

• "The Committee judged that a larger reduction now allows us to reach neutral settings more quickly"

• "At 2.50%, the OCR is now approaching a more neutral stance"

• "Future OCR decisions will be highly data-dependent as we assess the transmission of past easing"

• OCR trough projection ~2.25% to 2.50% (ambiguous)

The Press Conference:

• Governor Orr: "We've now delivered 300bp of cuts from the peak"

• "We need time to see how this substantial easing transmits through the economy"

• Refuses to pre-commit to November action: "Everything depends on Sep Q data"

• Signals higher bar for further cuts without evidence weakness persisting

Market Impact: Initial NZD drop but rebounds on pause signal. Yields fall then stabilize. Curve flattens.

Why This Is A Real Possibility:

• Front-Loading Logic: Get to 2.50% (near neutral) in one move rather than two 25bp cuts

• Transmission Lags: 300bp of cuts since May (5.5% → 2.5%) need time to work through economy

• Data Gap Justification: Without Sep Q CPI/labour data, RBNZ can argue for pause to assess

• Avoid Overshooting: If inflation falls faster than expected, 50bp + pause prevents under-easing

• Optionality Preservation: Can resume cuts in November if Sep Q data confirms weakness

• Communication Challenge: Harder to justify gradual 25bp steps if economy deteriorating rapidly

Expert Assessment: This scenario is plausible (~15% probability) and represents sophisticated central banking. RBNZ could judge that:

1. Economy needs lower rates now (justifies 50bp)

2. But uncertainty is high (justifies pausing to assess)

3. Past easing needs time to transmit (5 cuts in 6 months is substantial)

The key risk: markets may interpret "pause" as policy error if weakness continues. RBNZ would need to clearly communicate "data-dependent pause" not "we're done."

Hawkish Scenario: Hold at 3.00%

Probability: ~5%

The Decision: OCR unchanged at 3.00%

The Statement:

• "The Committee judged it prudent to await Sep Q inflation and labour market data"

• Acknowledges GDP weakness but notes inflation near top of band

• Emphasizes uncertainty around inflation trajectory

The Press Conference:

• Governor Orr defends decision to wait for hard data

• Suggests November likely to see cut if CPI confirms disinflation

Market Impact: NZD Bullish, yields positive, stocks negative.

Why This Is Unlikely: GDP miss too severe. Market would view hold as policy error risking deeper contraction.

8. Bottom Line: What Really Matters

Regardless of whether RBNZ cuts 25bp or 50bp tomorrow, the key insight is this:

The easing cycle is clearly underway and far from finished. The debate is about pace (gradual vs front-loaded), not direction.

Watch These Instead of Just the Rate Decision:

• OCR Projection Path: Where does RBNZ see the trough? 2.25%? 2.50%? This matters more than tomorrow's move.

• Forward Guidance Language: "Likely", "expected", or just "possible" for future cuts?

• GDP Forecast Revisions: How much do they downgrade 2025 growth?

• Inflation Characterization: Is the spike "temporary" or do they hedge?

Now that we have the 30 Sept 2025 RBA statement, here’s a side-by-side comparison with the prior (August) statement, highlighting the specific new remarks, data changes, and tone shifts that matter for markets in the short term.

Key Differences: September vs August

Inflation

• August: Inflation had eased into the 2–3% band, with underlying momentum lower, helped by rebates and easing pressures.

• September: “The decline in underlying inflation has slowed… recent data suggest Q3 inflation may be higher than expected.”
  🔹 New: Clearer warning that disinflation is stalling, with upside surprise risk. This is a hawkish tilt, raising doubt about how quickly the RBA will cut again.

Domestic demand & growth

• August: Growth outlook was subdued, public demand dominant, consumption weak, risks tilted to downside.

• September: “Private demand is recovering… private consumption is picking up as real household incomes rise… housing market is strengthening.”
  🔹 New: Stronger domestic recovery narrative. This is a shift away from a purely dovish, weak-growth picture, suggesting easing might not need to be as aggressive.

Labor market

• August: Labor conditions softening somewhat, unemployment ~4.3%, some easing in demand.

• September: “Labor market conditions broadly steady… unemployment unchanged at 4.2%, underutilization low… wages growth has eased, but productivity weak and unit labor costs high.”
  🔹 New: Balanced message — employment growth slowed, but overall labor market remains tight. The mention of unit labor costs high is a hawkish insertion, as it points to sticky wage-price dynamics.

Global risks

• August: Emphasized uncertainty, trade headwinds, geopolitical risks, downside to global demand.

• September: “More clarity on US tariffs — extreme outcomes avoided, but still adverse effect expected… geopolitical risks remain.”
  🔹 New: Slightly more optimistic (less extreme trade risks), but still cautious. Market read: less urgent downside risk, neutral for AUD.

Policy stance / guidance

• August: Dovish, emphasized “data dependency,” readiness to act, conditional forward guidance.

• September: “Signs that demand is recovering, inflation may be persistent in some areas, labor market stable… appropriate to remain cautious… policy well placed to respond if needed.”
  🔹 New: Stronger caution against rushing into more cuts. Less dovish than before, reinforcing a wait-and-see bias.

Summary : Most Market-Moving Phrases

• Tone shift: Compared to August, the September statement is less dovish. It highlights stronger domestic demand, slower disinflation, and sticky unit labor costs.

• Implication: This reduces near-term probability of another immediate cut. Markets may pare back November cut expectations slightly.

• AUD reaction: Near term (this week and next), AUD likely supported on dips, especially if global risk sentiment doesn’t collapse. AUD currency crosses may see AUD outperformance, while AUDUSD may remain also supported but also more dependent on USD drivers.

Fundamental & Positioning Context

• Monetary Policy Divergence: The European Central Bank's steady policy contrasts with the Reserve Bank of Australia's recent dovish stance and vulnerability to a global slowdown. Australia's reliance on commodity prices and the Chinese economy—both facing headwinds—creates a fundamental weakness for the AUD relative to the EUR. Late Monday China Manufacturing PMI and early Tuesday RBA monetary policy decision should shape the short to medium term outlook for the pair.

• Market Sentiment: CFTC positioning data confirms this narrative. Traders are heavily net long on the Euro and net short on the Australian Dollar, indicating a strong market consensus that favors EUR/AUD upside. CFTC shows EUR futures are net long (114.3K), while AUD futures are in net short territory (–59K contracts).

Technical Analysis

Daily Chart

• An inverse Head and Shoulders pattern is forming, which is a classic bullish reversal signal. The price has formed the left shoulder and head, and is currently developing the right shoulder.

• The neckline of this pattern is the crucial resistance zone between 1.7920 - 1.7940. A breakout above this level would technically confirm the pattern and signal a continuation of the broader uptrend.

• Support for the right shoulder is forming around the 1.7770 level.

Four-Hour Chart

• This chart provides a closer look at the key levels. The price recently broke 1.7845, a neckline for a minor double bottom pattern

• A likely scenario on Monday is we could trade between this support at 1.7845 and the key longer term resistance and neckline for the potential inverse head and shoulders on the daily chart at 1.7920-1.7940 area.

Likely Outlook & Key Scenarios

Primary Scenario (Bullish)

1. Expect the price to hold above the support levels of 1.7845 or, more importantly, 1.7785.

2. A subsequent rally to re-test the resistance zone of 1.7920 - 1.7940 is the most likely near-term move.

3. A decisive break and close above 1.7940 would be the primary trigger for a significant move higher, confirming the inverse Head and Shoulders pattern and targeting the August highs around 1.8080 and beyond.

Alternative Scenario (Bearish Invalidation)

The bullish outlook would be invalidated if the price fails to hold the recent lows. A break and close below the key support at 1.7785 would negate the inverse Head and Shoulders pattern. This would signal that sellers have regained control and could lead to a deeper correction towards the 1.7700 level.

Here are specific remarks or data shifts that could mark a significant deviation — and how markets might react:

Likely scenarios & how they could differ from the last

Given recent developments, here are three possible scenarios:

• Base scenario (most likely): The RBA holds at 3.60 %. The statement reaffirms the cautious, data-dependent posture. Slight upward tweaks to inflation risks or external uncertainty may be added, but no strong shift. The press conference is moderate, signaling openness to easing but with caution.

• Dovish surprise scenario: The RBA hints that cuts may resume earlier (or states that easing will be more aggressive than markets thought). Also, a stronger downgrade to growth forecasts or emphasis on downside risks. In press conference, Governor leans into accommodative stance.

• Hawkish-leaning surprise scenario: The RBA pushes back on market expectations for cuts, emphasizing persistent inflation risk, stronger wages, or tighter labor market. The forward guidance becomes more conditional or delayed. In press conference, there is more hesitation or guarded optimism rather than commitment.

A combination of slightly diverging fundamentals and a technical break on the chart suggest further downside is likely.
The bearish sentiment is largely driven by different economic and monetary policy expectations for the two countries.

Diverging Central Banks

New Zealand central bank RBNZ has made dovish remarks last monetary policy announcement, it cut its interest rate in an effort to jumpstart a faltering economy. Unlike the Bank of Canada, which is adopting a more wait-and-see approach. With Canadian inflation near target and its economy more robust, the interest rate spread should favor the CAD.

Economic Performance Gap

New Zealand's economy is displaying signs of stress, with domestic demand slowing and unemployment increasing. Although Canada's economy is also slowing, it seems to be on track for a softer landing, aided by a more stable labor market and a housing sector that has surprised to the upside.

The story is straightforward: a central bank actively easing policy to help a soft economy (New Zealand) compared with a central bank on hold with a more stable economy (Canada). That divergence provides a bearish outlook for the NZD/CAD.

The Chart Validates the Bearish Scenario

1. Established Downtrend: The pair has been making consecutively lower highs. This is a classic technical formation that is a clear signal that sellers are in charge and that buying momentum is disappearing with every attempt at a rally.

2. Critical Support Break: The most significant recent development was the definitive break of a key support level in the 0.8115 area. This level had held on multiple occasions since June, but the breakdown of this level likely paves the way for a more decline.

3. Support Turns Resistance: Since the breakdown, price has pulled back slightly higher to test this former broken support area. if price cannot retake this level, it confirms the breakdown.

4. Downside Targets: Now that the bearish structure is in place, the potential initial target is in the 0.8020-0.8030 area. This area corresponds with Fibonacci retracement and extension levels.

Bottom line

When technical and fundamental analysis converge, it forms a high-conviction trade. The underlying narrative of diverging monetary policies offers the "why" of NZD weakness , while the technical breakdown on the chart provides potential future price action.

With the RBNZ's easing cycle and the clear bearish price structure on the chart, the path of least resistance for NZD/CAD appears to be lower. Not being able to break the new resistance around ~0.8115 would most likely see the pair decline towards the first target area of 0.8020-0.8030 in the next couple of weeks.

Remember, nothing is guaranteed in this market... trade with care.

After a strong uptrend from January, the price entered a corrective phase in July. An initial Head and Shoulders topping pattern appeared to cause a breakdown. While the break-down extended the downside correction, it failed to sustain momentum as a new established down-trend, finding significant support at 38.6 retracement level. The subsequent price recovery has now formed a potential inverse Head and Shoulders pattern, suggesting a possible continuation of the longer-term uptrend.

What Actually Happened

1. Bearish pattern failed to achieve full target: The H & S neckline support initially suggested a potential trend reversal to the downside.

2. Key support level: The downward move was halted at the 38.2% Fibonacci retracement level 1.3143. This level, derived from the overall uptrend that started in January to July 1st high at 1.3788. The price also found support near the 200-day Simple Moving Average.

3. Bullish reversal signals: Following the bounce from the Fibonacci support, the price has shown several signs of strength:
   - It has moved back above the neckline of the prior, failed Head and Shoulders pattern.
   - It has broken a short-term falling trendline that had defined the recent correction.

4. Emerging bullish pattern: The price action is now forming a potential inverse Head and Shoulders pattern, which is typically a bullish reversal formation. The recent swing low could be a possible right shoulder.

What to Watch Next

I am watching the 1.3600 level right now for the next trade. This is the make-or-break point.
If we can push through and hold above 1.3600, it would confirm the bullish pattern and open the door for a move toward the major highs around 1.3788 as an initial target.
On the flip side, if the market stalls at 1.3600 and turns lower, I will be watching a signal of reversal such as a bearish reversal candle. A failure there could send us back to test those support levels among 1.3400-1.3375 again.