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AUD/USD and NZD/USD Fundamental Weekly Forecast – Retail Sales Miss Could Fuel Short-Covering Rally

Look for some volatility following the release of the U.S. retail sales report at 12:30 GMT especially if the report comes out weaker than expected. Core Retail Sales are expected to have risen 0.4%, while Retail Sales are expected to come in flat.

The Australian and New Zealand Dollars are trading mixed shortly before the U.S. opening. The Aussie is trading lower and the Kiwi is moving higher. There were no major economic releases overnight. The price action is likely position-squaring and short-covering fueled by oversold technical conditions. Traders could also be reacting to the softening U.S. economy following Friday’s mixed U.S. Non-Farm Payrolls report.

At 10:21 GMT, the AUD/USD is trading .7042, down 0.0004 or -0.07% and the NZD/USD is at .6808, up 0.0006 or +0.08%.

The trend is down for both currencies. However, with both Forex pairs down 10 to 12 sessions from their most recent tops, they may be ripe for a short-term counter-trend rally. This is normal price action. With the fundamentals turning bearish last week, traders may allow for a short-term retracement in order to re-short at more favorable price levels.

A dovish outlook for the global economy is weighing on the Aussie and Kiwi. Signs of weakness in the domestic economy are also leading Australian Dollar traders to price in at least one rate cut later this year. Although Reserve Bank of New Zealand policymakers continue to present a hawkish front in their policy comments, traders think otherwise and are also starting to price in a rate cut later in the year.

Westpac Calling for Rate Cuts

“The Reserve Bank (of Australia) will be forced to further downgrade its economic growth forecasts as rising unemployment and an ‘income recession’ for households take hold,” according to Westpac chief economist Bill Evans.

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“Once you start to accept the fact that the economy won’t be growing above trend, and will in fact be growing below trend, then you start to reassess your view on the outlook for the unemployment rate,” he said.

Evans said, “I’m expecting that we’ll see that unemployment rate starting to edge up over the course of this year. I think the right response will be for the Reserve Bank to cut rates.”

Keep an Eye on U.S.-China Trade News

Although there were no headlines released last week on the ongoing trade negotiations between the United States and China, traders should continue to monitor the situation. The first announcement may be a meeting between U.S. President Trump and China President Xi Jinping. This will signal that deal has been reached because both leaders are not going to go into any meeting until there is an agreement. China won’t risk Trump walking away from this meeting like he did with the North Koreans two weeks ago.

Any bullish news about a trade deal is likely to trigger a spike to the upside in the Australian Dollar, however, it’s not likely to lead to a change in trend.

U.S. Retail Sales

Look for some volatility following the release of the U.S. retail sales report at 12:30 GMT especially if the report comes out weaker than expected. Core Retail Sales are expected to have risen 0.4%, while Retail Sales are expected to come in flat.

This article was originally posted on FX Empire

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