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AUD/USD and NZD/USD Fundamental Weekly Forecast – RBA Takes Backseat to Demand for Risk

James Hyerczyk

Trader demand for risky assets and commodities is likely to continue to underpin the Australian and New Zealand Dollars this week. Traders will also get the opportunity to react to a slew of economic reports from Australia and New Zealand, but most of these reports are likely to be treated as old news until the second quarter data starts to come out.

The Reserve Bank of Australia is scheduled to release its cash rate and monetary policy decisions, however, they aren’t expected to rock the boat and waver from their current message.

Last week, the AUD/USD settled at .6668, up 0.0133 or +2.03% and the NZD/USD finished at .6207, up 0.0112 or +1.84%.

After trading steady late in the week due to concerns over worsening U.S.-China relations and the fear that the U.S. would pull out of its Phase One trade deal with China, prices recovered late on Friday, perhaps setting a slightly bullish tone for early this week.

Trump’s Response to China Surprises then Calms Traders

The Aussie and Kiwi firmed late Friday as investors breathed a sigh of relief after President Donald Trump signaled no changes to the trade deal with China despite rising tensions.

During a much-awaited news conference, Trump said he would take action to eliminate special treatment towards Hong Kong. However, he did not indicate the U.S. would pull out of the phase one trade agreement reached with China earlier this year, easing trader concerns for the time being.

Australian News

Economic data out of Australia was limited last week with Construction Work Done and Private Capital Expenditure coming in lower but better than the forecast. There was little response to the reports, however, since the data did not show the full impact of the coronavirus shutdowns.

Comments from Reserve Bank of Australia (RBA) Governor Philip Lowe were actually supportive. Lowe said that negative interest rates are “extraordinarily unlikely” in Australia as they come with a cost to the financial system. His remarks came as the Reserve Bank of New Zealand (RBNZ) said it asked banks to prepare for negative rates by year-end.

The Reserve Bank of Australia (RBA) has lowered its cash rate to a record low of 0.25% and in March launched an unlimited quantitative easing program to cushion the hit to the economy from the COVID-19 pandemic.

New Zealand News

Last week, the RBNZ said New Zealand’s financial system is in a solid position both to weather the significant economic impact caused by the COVID-19 pandemic and support recovery.

RBNZ Governor Adrian Orr said in a financial stability report released last Wednesday that RBNZ economic stress test analysis suggest banks in the country can continue to lend and prosper through a broad range of adverse scenarios.

Weekly Forecast

The RBA is expected to leave its benchmark interest rate at 0.25%. We’re also looking for policymakers to leave monetary policy measures intact. Additionally, although Governor Philip Lowe has been cautiously optimistic about Australia’s economic recovery, we do expect him to tone down the negative talk and deliver a more upbeat outlook for the economy.

We also expect forward guidance to remain unchanged with policymakers reiterating that the RBA will “not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3% target band.”

In other news, Australia’s quarterly GDP is expected to come in at -0.4%. Higher exports are expected to hold it stable although investors may look beyond this report since the data reflects the economy before the country-wide coronavirus restrictions were implemented.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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