Yahoo Finance AUD/USD and NZD/USD Fundamental Weekly Forecast – Needs Help from Chinese Markets to Sustain Late Week Recovery
The Australian and New Zealand Dollars finished higher last week after posting a volatile two-sided trade. The volatile price action was fueled at times by a hawkish U.S. Federal Reserve, domestic economic data and weakness then a recovery in China’s stock markets.
The AUD/USD settled at .7120, up 0.0004 or +0.06%. For the week, the NZD/USD settled at .6591, up 0.0083 or +1.28%.
The hawkish Fed minutes underpinned Treasury yields, making the U.S. Dollar a more attractive investment. Stocks were volatile, however, the Dow managed to close higher for the week.
The minutes from the U.S. Federal Reserve’s September meeting showed that Fed policymakers are largely united on the need to raise borrowing costs further. The minutes showed officials believe the central bank should continue to increase interest rates to ensure a stable economy.
A summary of the Federal Open Market Committee’s September session revealed both confidence in the rate of economic growth as well as some concern over the impact tariffs might have on GDP.
“With regard to the outlook for monetary policy beyond this meeting, participants generally anticipated that further gradual increases in the target range for the federal funds rate would most likely be consistent with a sustained economic expansion, strong labor market conditions, and inflation near 2 percent over the medium term,” the minutes read.
Australian Dollar
Australia’s unemployment rate fell faster than anticipated, dropping sharply to 5% last month. The larger than expected decline in unemployment means the labor market is now meeting the Reserve Bank’s definition of “full employment”.
In seasonally adjusted terms, the number of employed persons increased by 5,600 last month, which was much weaker than the 45,000 new jobs in August.
New Zealand Dollar
Consumer prices in New Zealand were up 0.9 percent on quarter in the third quarter of 2018, Statistics New Zealand said on Tuesday. That exceeded expectations for an increase of 0.7 percent and was up from 0.4 percent in the three months prior.
Recovery in China Helps Boost Aussie and Kiwi
China was in the news all week with most of the focus on Chinese stocks which have slumped close to 10 percent so far this month. Foreign investors and domestic institutions dumped shares amid concerns about rising U.S. Treasury yields and risks to the world’s second largest economy, and as worries rose over the prospect of forced margin calls.
On Friday, China reported that gross domestic product grew 6.5 percent year-on-year in the third quarter, below expectations and the weakest quarterly pace since the first quarter of 2009.
China’s Yuan edged up against the U.S. Dollar on Friday, but was still set for a weekly loss. The People’s Bank of China set the mid-point at 6.9387 per dollar, 0.16 percent weaker than the previous day’s fix and the lowest level since January 4, 2017.
China’s stock and currency markets posted a rapid turnaround on Friday after the PBOC moved to instill investor confidence. The governor of the PBOC said that China’s current equity valuations were not in line with sound economic fundamentals, and that the bank would enact targeted measures to help ease firms’ financing problems and encourage commercial banks to boost lending to private firms.
Also helping to boost the Yuan was Shiyu, chairman of the China Securities Regulatory Commission (CSRC), also said the regulator will support the issuance of high-yield bonds and other debt products by small and medium-sized companies.
Forecast
There are no major domestic reports out of Australia and New Zealand this week so the direction of the Aussie and Kiwi is likely to be driven by the movement in China’s stock market. Both currencies could continue their short-covering rallies if the major Chinese indices continue to strengthen.
Another steep sell-off in the Chinese stock markets should lead to further weakness in the Aussie and Kiwi.
The major economic reports this week will be Thursday’s Durable Goods and Friday’s Advance GDP. Core Durable Goods are expected to have risen 0.3%. This will be up from 0.0%. Advance GDP is expected to have risen 3.3%, lower than the previously reported 4.2% at the end of the second quarter.
This article was originally posted on FX Empire
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