Yahoo Finance AUD/USD and NZD/USD Fundamental Weekly Forecast – FOMC Statement, Economic Projections Will Set Tone
The Australian Dollar rose sharply early in the week, helped by strong demand for higher risk assets, but the rally faded as investors reacted to not so friendly domestic economic data, trade war fears and the upcoming interest rate hike by the Fed. Aussie traders also expressed some concerns over renewed talk of problems in emerging markets.
The AUD/USD settled at .7598, up 0.0029 or +0.39%.
The week started with the Australian government reporting stronger than expected retail sales data. Retail Sales came in up 0.4% after coming in flat the month before. Traders were looking for a rise of 0.3%.
The Reserve Bank of Australia delivered a familiar message early in the week saying they were happy with the economy, but still not ready to make a move on interest rates. The RBA left its benchmark interest rate at 1.50% for the 20th consecutive meeting, the longest span in history. Additionally, investors priced in the chances of the next rate hike for November 2019.
Australian GDP came in at 1.0%, beating the 0.9% estimate. Additionally, 2017 fourth quarter GDP was revised upward to 0.5%. Prices spiked on the news, however, the rally stalled when investors realized that this type of growth would not be sustained.
The AUD/USD rally started to fade and the Forex pair ended the week with two-straight sessions of losses after the trade balance came in at 0.98 Billion. Although the number matched the estimate, it was still well below the upwardly revised previous report of 1.73 Billion.
New Zealand Dollar
The New Zealand Dollar posted a small gain last week. There were no major domestic reports so investors piggy-backed the rally in the Australian Dollar. Oversold conditions and increased demand for higher risk assets also drove the Kiwi higher.
The NZD/USD settled at .7030, up 0.0043 or +0.62%.
Forecast
Economic data will be robust this week, highlighted with U.S. May’s inflation report Tuesday, a rate decision from the U.S. Federal Reserve Wednesday, and retail sales Thursday. Traders will also get the opportunity to react to a speech by Reserve Bank of Australia Governor Philip Lowe and reports on the Employment Change and the Unemployment Rate.
The U.S. Consumer Price Index is expected to show a monthly increase of 0.2%. Core CPI is expected to rise 0.1%. Producer inflation is expected to jump 0.3%, up from April’s 0.1% rise. These reports are not expected to change the outcome of the Fed’s rate decision on Wednesday. The central bank is widely expected to raise its benchmark rate 25 basis points.
Retail Sales are expected to come in at 0.4%, up from 0.3%. Core Retail Sales are expected to rise 0.3%, matching the previous gain.
AUD/USD and NZD/USD investors have fully-priced in the June rate hike. However, there is still some uncertainty over future rate hikes. Traders aren’t sure if there will be one or two more rate hikes after that. Currency traders will be looking for clues about the Fed’s next interest rate moves in the Federal Open Market Committee’s Monetary Policy Statement, Economic Projections and Press Conference.
As far as Trump’s meeting with Kim Jong-un, it’s too hard to tell how the outcome will influence the U.S. Dollar. I suspect the U.S. Dollar will be underpinned by some kind of a “peace” deal, but I’m not sure how much of an impact it will have.
AUD/USD and NZD/USD investors will be paying closer attention to the Fed than to the meeting. Once again, the direction of Treasury yields will exert the most influence on the direction of the U.S. Dollar.
Additionally, for a second week, increased demand for risky assets could help support the Australian and New Zealand Dollars.
This article was originally posted on FX Empire
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