AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Lowe’s Speech Should Clarify Next Move in Policy

The Australian and New Zealand Dollars are trading slightly better shortly before Tuesday’s close. Volume is extremely light due to the start of the Lunar New Year in Asia and a bank holiday in New Zealand. Lower Treasury yields and position-squaring ahead of President Trump’s State of the Union Address at 02:00 GMT is influencing the price action late in the session.

At 19:20 GMT, the AUD/USD is trading .7232, up 0.0007 or +0.10% and the NZD/USD is at .6893, up 0.0010 or +0.13%.

Most of the volatility took place earlier in the session in the AUD/USD. The volatility was fueled by the Reserve Bank of Australia (RBA) monetary policy statement, which turned out less-dovish than expected and unexpected positive news from the Royal Commission.

RBA Interest Rate Decision and Monetary Policy Statement

Early Tuesday, the RBA kept its benchmark cash rate unchanged at 1.50 percent. The central bank also trimmed is forecasts for growth and inflation in a sign that a rate hike was far off the horizon even as it met expectations in leaving policy at a record low for a 30^th straight month.

“As is the case globally, some downside risks have increased (for the Australian economy),” Governor Philip Lowe said in the post-meeting statement.

“The main domestic uncertainty remains around the outlook for household spending and the effect of falling housing prices in some cities.”

“The stronger labour market has led to some pick-up in wages growth, which is a welcome development,” Lowe said, maintaining his sanguine glass half-full view of the economy.

“The improvement in the labour market should see some further lift in wages growth over time, although this is still expected to be a gradual process.”

“The low level of interest rates is continuing to support the Australian economy,” Lowe repeated.

“Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”

Royal Commission Decision Fuels Short-Covering Rally

The Aussie Dollar as well as bank stocks rose sharply early Tuesday after a special government appointed inquiry into the country’s financial sector did not recommend breaking up any of the banks or interfering in the way to lend money, Reuters reported.

Daily Forecast

In the RBA Monetary Policy Statement, policymakers refrained from committing to the direction of the next move in policy. However, this issue should be addressed on Wednesday when RBA Chief Lowe speaks. Furthermore, the RBA will issue its quarterly outlook on Friday.

Traders did get some clues from Lowe about the RBA’s thoughts when he said the A$1.8 trillion would likely expand around 3 percent this year, a slightly more cautious view compared to “a little above 3 percent” in its previous statement.

The longer-term issues for Australian and New Zealand Dollar traders will be whether their respective central bank’s cut rates later in the year, or if the Fed shifts its tone to less-dovish.

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