Yahoo Finance AUD/USD and NZD/USD Fundamental Daily Forecast – Heightened Volatility Due to Ever-Changing “Risk-On”, “Risk-Off” Scenarios
The Australian and New Zealand Dollars are trading slightly better shortly before the U.S. opening. The price action has been mixed to lower this week. While the Reserve Bank of Australia’s (RBA) decision to leave its benchmark interest rate unchanged has been seen as mostly positive by investors, renewed concerns over U.S.-China trade relations have kept a lid on Australian Dollar prices.
The kiwi is recovering nicely after the Reserve Bank of New Zealand’s (RBNZ)’s decision to cut its benchmark interest rate prompted a steep sell-off into its lowest level since November 2, 2018. The central bank also placed a 50/50 chance on another interest rate cut later in the year. Nonetheless, the price action suggests the interest rate slash was priced into the market.
This week’s price action in both currencies reflects position-squaring and short-covering since traders are decisively short due to the divergence in monetary policy between the less-dovish U.S. Federal Reserve and the more-dovish Reserve Bank of Australia and Reserve Bank of New Zealand.
At 09:11 GMT, the AUD/USD is trading .7000, up 0.0014 or +0.18 % and the NZD/USD is at .6597, up 0.0008 or +0.11%.
Australian Dollar
An overnight report showed the RBA has downgraded its economic forecasts for GDP and underlying inflation this year. It also showed central bank policymakers see slower progress in lowering unemployment.
The report went on to show that the RBA still sees underlying inflation moving back to 2% by the end of 2020 despite an expectation that unemployment will hardly decline and wage growth will remain low over the same period.
Furthermore, the central bank repeated that it will be “paying close attention to developments in the labor market at its upcoming meetings”.
RBA and Economic Growth
The RBA downgraded its near-term GDP forecasts, now seeing economic growth of 2.75% by the end of this year, down from 3% three months ago.
RBA Sees Current Inflation Well Below Expectations
The RBA now sees slower progress in returning it to the bottom of its 2-3% target, now forecast by the middle of 2020 rather than the end of this year as seen three months ago.
New Zealand Dollar
There was nothing major on the economic front out of New Zealand overnight. Nonetheless, the Kiwi firmed on improved prospects for a deal out of US-China trade talks.
Daily Forecast
Like I wrote earlier, all of the price action is related to position-squaring. There hasn’t been anything in the news to drive any major changes in central bank policy so traders are still favoring a long U.S. Dollar, short Australian and New Zealand Dollar position.
What we’re expecting to see throughout the session is heightened volatility related to headline news regarding US-China trade policy. The price action will be largely related to ever changing “risk-on” and “risk-off” scenarios as the two economic powerhouses try to hammer out a trade deal.
This article was originally posted on FX Empire
