AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Weakens Despite Bond Market Turmoil

The Australian and New Zealand Dollars finished lower on Friday, but managed to hold on to its marginal weekly gains. The price action was likely fueled by position-squaring as traders began preparing for this week’s monetary policy announcements by the U.S. Federal Reserve. The Reserve Bank of Australia (RBA) is also scheduled to make monetary policy decisions on Tuesday.

The Fed ends a two-day meeting on November 3 and is widely expected to begin to pare back stimulus, with interest rate hikes follow next year. The tapering of its massive stimulus has been priced into the market for weeks. What traders want to know is the timing of the first rate hike and the frequency at which the Fed is playing to raise rates. If there is going to be volatility this week, then these two issues are likely to be the source.

On Friday, the AUD/USD settled at .7521, down 0.0024 or -0.31% and the NZD/USD finished at .7171, down 0.0033 or -0.45%.

Economic News

In Australia, quarterly PPI rose 1.1%, higher than the 0.6% estimate. Retail Sales rose 1.3%, more than the 0.4% forecast. Private Sector Credit also improved by 0.6%.

In New Zealand, a gauge of consumer confidence slipped in October, putting some pressure on the Kiwi.

In the United States, personal income fell 1% in September, more than the 0.4% decline expected by economists, according to Dow Jones. Consumer spending rose 0.6%, matching expectations. The core consumer price index rose 0.2% month over month, as expected, but the year-over-year change was the highest in three decades.

The University of Michigan’s final October consumer sentiment reading came in slightly better than expected at 71.7 but is still well below its levels from earlier in the year.

Reserve Bank of Australia Loses Yield Control as Bonds Melt Down

Australia’s central bank on Friday lost all control of the yield target key to its stimulus policy as bonds suffered their biggest shellacking in decades and markets howled for rate hikes as soon as April.

An already torrid week for debt got even worse when the Reserve Bank of Australia (RBA) again declined to defend its 0.1% target for the key April 2024 bond, even though its yield was all the way up at 0.58%.

In addition to the Fed’s monetary policy decisions on Wednesday, AUD/USD traders are also bracing for the Cash Rate and RBA Rate Statement on Tuesday. Traders expect the RBA to leave its benchmark unchanged at 0.10%.

However, the markets are already well ahead of the RBA with futures pricing in a hike in the 0.1% cash rate to 0.25% as early as April, while swaps have rates above 1% by year-end.