AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Indicates Further Rate Cuts are Coming

The Australian and New Zealand Dollars are trading mixed on Tuesday shortly before the U.S. opening. The Australian Dollar is coming down from its intraday high after surging earlier in the session following the Reserve Bank of Australia’s (RBA) decision to leave interest rates unchanged. The price action suggests the move was just a knee-jerk reaction to the announcement. The New Zealand Dollar moved higher in sympathy with the Aussie before turning lower.

At 10:53 GMT, the AUD/USD is trading .6707, up 0.0015 or +0.23% and the NZD/USD is at .6455, down .0008 or -0.13%.

RBA Holds Interest Rates Steady

The AUD/USD spiked higher after the RBA held interest rates steady and remained upbeat on the economic outlook of the country despite the impact of bushfires at home and the coronavirus in China.

The RBA kept its cash rate at a record low of 0.75% following the first policy meeting of the year. Ahead of the announcement, the markets had priced in around a 20% chance of a cut given the economic damage done by a summer of raging wildfires and spreading epidemic in China.

RBA Governor Philip Lowe acknowledged both the challenges in a post-meeting statement, but argued they would only “temporarily weigh” on domestic growth.

Instead, he stuck with a forecast of 2.75% growth this year and 3% next, above most private forecasters. He did reiterate that the RBA stood ready to ease again if needed, following three cuts last year, but put no time frame on it.

“Due to both global and domestic factors, it is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target,” RBA Governor Philip Lowe said in a media release announcing the central bank’s monetary policy decision.

On the topic of the ongoing coronavirus outbreak, Lowe said it was a source of uncertainty that is having a “significant effect” on the Chinese economy currently, though it is “too early to determine how long-lasting the impact will be.”

Daily Forecast

The announcement from the RBA may lead to further short-covering, but gains are likely to be limited. As far as traders are concerned, the announcement is already old news. The markets have aggressively ramped up wagers on further cuts as the economic fallout from the coronavirus spread. The futures markets still imply a 73% chance of a quarter-point move by April, rising to 100% by May.

Investors have also shifted sharply to price in the risk of yet a further easing, with a rate of 0.25% indicated at a 60% probability by November.