AUD/USD and NZD/USD Fundamental Daily Forecast – Investors Not Impressed by Rate Cut, Stimulus Expectations

Both currencies are trading slightly lower after heightened volatility whip-sawed the Aussie and Kiwi on Monday. Perhaps traders need another day or two to catch their breath. Or maybe investors are betting on aggressive monetary policy moves by their respective central banks. We do suspect that a weak business confidence reading may be weighing on the Aussie.

At 07:19 GMT, the AUD/USD is trading .6552, down 0.0033 or -0.51% and the NZD/USD is at .6299, down 0.0035 or -0.55%.

RBA Rate Cut Expectations Rise

Macrobusiness of Australia says, in the week or so since the RBA delivered its 25bp rate cut last Tuesday, the market has pushed the odds of a follow-up in April to 100% and even pushed the terminal rate to around 5bps or so below the 0.25% level that we regard as the lowest cash target that the RBA would adopt using “conventional” monetary policy tools.

Australian PM Scott Morrison Says Stimulus Package Will Be Announced Soon

Australian Prime Minister Scott Morrison said on Tuesday the government will soon announce measures to stimulate an economy hammered by the effects of the coronavirus outbreak.

A report in the Australian Financial Review on Monday said the government was planning measures worth about A$10 billion, abandoning plans for a budget surplus in the current fiscal year.

“Our objective is this – keep people in jobs, keep businesses in business, and ensure we bounce back stronger on the other side,” Morrison said at the Australian Financial Review conference in Sydney.

“We must favor measures that will lift productivity to enable the Australian economy to sustain an even stronger growth trajectory than we were on prior to the crisis.”

Economic News

Quarterly New Zealand Manufacturing Sales rose 2.4%, and the previous quarter was revised higher to 1.2%.

Measures of Australian business and consumer sentiment took a battering in February as a coronavirus outbreak threatens to severely impede growth, raising the risk of the country’s first recession in three decades.

National Australia Bank’s (NAB) index of business conditions slipped to 0 in February from a downwardly revised +2 in January, way below the long-run average of +6.

The survey’s volatile measure of business confidence plunged to -4 from -1, with sales and profitability remaining weak.

More importantly, leading indicators were softer in the month with forward orders deteriorating significantly while profitability dived to -5 from +1 in January.

Daily Forecast

If the AUD/USD and NZD/USD are having trouble when “risk is on” then we have to chalk it up to fear about the near-term economic outlook. The price action indicates that traders are expecting weakness, which may not be avoided by aggressive interest rate cuts and the widely expected fiscal stimulus.

The price action clearly indicates the Aussie and Kiwi are going to have a hard time rallying without help from China’s economy. And no one is sure when it will return to normal.