Markets continue to play the optimism achieved at the G20 summit, yet its stability is already being questioned. Stock indices are trading in the green zone but after a strong downward roll, gold is approaching $1,400 again. Bond yields have sharply gone down, indicating an increase in demand for defensive assets.

The Caixin PMI index in China's industry dropped to 49.4p, repeating the result from NBS and the threat of a slowdown forces the Chinese authorities to apply incentives to maintain activity. In particular, it announced an intention to reduce the required reserves ratio for banks and lower real interest rates in order to facilitate the financing of small enterprises. This is certainly not the last thing. The threat of a slowdown in China means the threat of a slowdown in the entire global economy.

NZD/USD pair

The NZIER quarterly study showed a deterioration in the basic health indicators of the New Zealand economy. Business confidence fell to its lowest level since March 2009 and a net of 31% of enterprises expect a deterioration in overall economic conditions in the coming months.

Demand is declining. Enterprises are waiting for the development of negative dynamics in the next quarter, which suggests a decrease in GDP growth below 2% in the second half of 2019.

The most visible pessimism is in the manufacturing sector. Confidence among producers fell to its lowest level since December 2008, that is, in fact, to the level of panic in the most acute phase of the crisis. More than half of manufacturers expect to deteriorate in the coming months. The overall profitability of the business has fallen to its lowest level since March 2011 and only one indicator allows us to hope that a massive failure can be avoided given the still-growing investment in business and the associated growth wages and a stable labor market.

Despite the fact that the RBNZ left the key rate unchanged at the last meeting, his comment became even more dovish. The deterioration in the prospects for the world economy led to a number of statements by the leading Central Bank about the intention to continue the stimulus. The yield of bonds plummeted, thus it went down, as well as the local incomes. Most banks expect two rate cuts in the current year, which coincides with expectations at the Fed rate. It means that the RBNZ will generally maintain parity with the Fed at the rate and the Kiwi rate will not be subjected to strong pressure from this side in any direction.

While the markets reigned complacency caused by a pause in the trade war between China and the United States, the Kiwi will look confident against the dollar. Now, the support of 0.6660/80 is being tested. If it stands, the NZD/USD pair will return to the maximum of 0.6727 in order to update it. If the bears increase the pressure, then a decrease to 0.6610 / 20 is possible, followed by a departure to the lateral range. However, this is a slightly less likely scenario.

AUD/USD pair

On the eve of the meeting, the RBA AiG confirmed the worst fears. Report on the fall in manufacturing PMI from 52.7% to 49.4% in June actually confirmed the start of the production reduction phase. This is the lowest level since August 2016.

Monetary stimulation in Australia is more justified than in New Zealand since Australia looks worse for a number of key parameters. Inflation in Australia is only 1.3% against the RBNZ forecast of 1.7% for Q2. Unemployment is 5.2% with 66% of the working-age population in the labor force while in New Zealand, these figures are 4.2% and 70%, respectively. The growth rate of the average wage is also not in favor of Aussie as ANZ Bank predicts a growth of 2.3% in New Zealand and only 1.8% in Australia.

As a result, today's decision of the RBA to lower the rate for the second time in a row to 1% did not cause any surprise in the markets as it was confidently predicted. Moreover, the RBA has reserved the right to further rate cuts and therefore it is not necessary to expect an increase in Aussies in the near future. he most likely scenario is a decrease in the AUD/USD pair to the nearest support of 0.6955 with a further breakout to 0.6926.