Yahoo Finance AUD/USD and NZD/USD Fundamental Weekly Forecast – Prepare for Heightened Volatility Ahead of Powell Testimony
Volatility was the theme in the Australian and New Zealand Dollars last week as the focus returned to concerns over interest rate policy after Westpac bank, one of Australia’s biggest banks slashed its expectations for economic growth, while predicting two rate hikes by the Reserve Bank of Australia this year.
According to its report, Wespac changed its interest rate forecast and now expects the RBA to cut its benchmark interest rate 25 basis points in both August and November. That would trim the central bank’s official cash rate to just 1 percent.
Furthermore, it also revised down its GDP growth forecasts for 2019 and 2020 from 2.6 percent to 2.2 percent and expects the unemployment rate to start rising in the second half of this year. It also says inflation will remain subdued.
Australian Dollar
The week started with the minutes of the RBA Monetary Policy meeting showing that the central bank saw “significant uncertainties” in the economy as property values took a nosedive. This opened the door to future rate cuts.
Earlier in the month on February 6, RBA Governor Philip Lowe opened the door to a possible rate cut by acknowledging growing economic risks, in a surprise shift from its long-standing tightening bias.
Australian economic data was mixed last week with the Wage Price Index coming in at 0.5%, lower than the 0.6% forecast. The Employment Change showed the economy added 39.1K jobs in January. This was above the estimate. However, the previous month was revised lower to 16.9K. The Unemployment Rate came in unchanged at 5.0%.
The labor market data was actually supportive for the Aussie, but the currency plunged mid-week following reports that China banned coal imports from the country at a major port.
According to Reuters, customs at the Chinese port of Dalian has banned imported Australian coal since February, and will “cap overall coal imports from all sources to the end of 2019 at 12 million tonnes.” It also said that major posts elsewhere in China prolonged clearing times for Australian coal to at least 40 days. On Friday, the Aussie rebounded after Australian officials downplayed the impact of the ban.
Last week, the AUD/USD settled at .7128, down 0.0011 or -0.15%.
New Zealand Dollar
There were no major reports out of New Zealand last week, but the Kiwi lost ground anyway in sympathy with the steep drop in the Australian Dollar.
Minor reports showed the GDT Price index rising 0.9%. The previous week, it was up 6.7%. Credit Card Spending was up 6.9%, better than the previous month’s 4.5% reading.
A report on Producer Inflation was mixed. Quarterly PPI Input rose 1.6%, higher than the 1.0% estimate. The previous quarter showed an increase of 1.40%. Quarterly PPI Output was down 0.8%, below the 1.1% forecast and the 1.5% increase, reported last quarter.
Last week, the NZD/USD settled at .6850, down 0.0015 or -0.22%.
Weekly Forecast
There is only one major economic release from Australia this week, Private Capital Expenditure. In New Zealand, the major reports are Retail Sales and ANZ Business Confidence.
U.S.-China trade relations should continue to make headlines, but the primary focus for traders will be the three days of testimony by U.S. Federal Reserve Chairman Jerome Powell on Tuesday, Wednesday and Thursday. His testimony will have a major impact on U.S. Treasury yields, and this should dictate the price action in the AUD/USD and NZD/USD.
The chart pattern in the March 10-year U.S. Treasury note futures contract suggests investors need to prepare for a major move in Treasury yields.
If Powell is dovish in his remarks then then Treasury yields could plunge and this would be bullish for the AUD/USD and NZD/USD. A steep drop in U.S. Treasury yields this week will tighten the interest rate differential, making the U.S. Dollar a less-desirable assets.
If Powell is hawkish then Treasury yields could soar, triggering a spike to the downside by the Australian and New Zealand Dollars.
I am confident that we will see better-than-average volatility this week because of Powell.
This article was originally posted on FX Empire
