AUD/USD and NZD/USD Fundamental Daily Forecast – Positive RBA Official Comments Fuel Massive Aussie Recovery

Much of the Aussie’s gains on Wednesday were triggered after the RBA Deputy Governor Guy Debelle sounded optimistic about the nation’s labor market and said that part of weakness in economic growth was temporary, led by the disruption to resource exports and the effect of the drought.
James Hyerczyk
AUD/USD and NZD/USD

The Australian and New Zealand Dollars are trading higher on Wednesday with the former producing the largest gains. The Aussie is being helped by rising iron ore prices, improved consumer sentiment and positive comments from a central bank official. The Kiwi is edging higher, but has traded sideways most of the week.

At 07:46 GMT, the AUD/USD is trading .7146, up 0.0020 or +0.29% and the NZD/USD is at .6747, up 0.0003 or +0.04%.

The Australian Dollar posted a volatile two-sided trade on Tuesday, first driven sharply higher by a weaker U.S. Dollar and rising iron ore prices that hit a five-year high. However, the Aussie quickly reversed to the downside after the International Monetary Fund (IMF) slashed its global economic growth forecast for 2019.

On Wednesday, the Aussie is recovering from yesterday’s surprise reversal, nearly completely erasing yesterday’s setback while putting the currency in a position to challenge Tuesday’s high at .7153.

Aussie Outperforms Kiwi

The Australian Dollar is currently outperforming the New Zealand Dollar because of the divergence in monetary policy by their respective central banks. The Reserve Bank of Australia has taken a neutral stance toward its next major policy move. The rise in iron ore prices is certainly helping it remain patient while it waits for the housing market to recover. The Reserve Bank of New Zealand, on the other hand, is on record as saying its next move is likely to be a rate cut.

IMF Forecast Fuels Volatile Response

The volatility in the market on Tuesday was triggered after the IMF cut its global economic growth forecast for this year, blaming risks from increasing trade tensions and tighter monetary policy by the U.S. Federal Reserve.

The IMF said it expects the world economy to grow by 3.3% in 2019, down from its previous estimate of 3.5%, which was also a downgrade. The fund also added that it expects the economy to expand by 3.6% in 2020, however.

“The balance of risks remains skewed to the downside,” the IMF said. “Failure to resolve differences and a resulting increase in tariff barriers above and beyond what is incorporated into the forecast would lead to higher costs of imported intermediate and capital goods and higher final goods prices for consumers.”

Finally, investors will be looking for any FOMC comments about a flattening yield curve and its potential recession warning.

Australian Consumer Sentiment Rises

Early Wednesday, the Melbourne Institute and Westpac Bank Index of consumer sentiment rose 1.9 percent in April, only partially retracing March’s sharp 4.8 percent slide.

RBA’s Debelle Sends Aussie Higher

Much of the Aussie’s gains on Wednesday were triggered after the RBA Deputy Governor Guy Debelle sounded optimistic about the nation’s labor market and said that part of weakness in economic growth was temporary, led by the disruption to resource exports and the effect of the drought.

Daily Forecast

Later today, investors will get the opportunity to react to a U.S. report on consumer inflation at 12:30 GMT. CPI is expected to have increased by 0.3%. Core CPI is expected to have risen by 0.2%.

At 18:00 GMT, the Fed minutes aren’t expected to reveal any surprises about the course of interest rates. According to Bloomberg, “An important focal point of the minutes will be to determine the extent to which Fed officials expect the sources of recent economic weakness to be transitory.”

Translation: The Fed minutes may let us know if central bank policymakers expect the economic weakness seen in some reports to develop into a trend.

There is also expected to be some discussion on inflation. Furthermore, Fed Chair Jerome Powell said he’s not worried about a tight labor market fueling higher wages, however, the minutes could provide some elaboration of these views.

Finally, investors will be looking for any FOMC comments about a flattening yield curve and its potential recession warning.

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