AUD/USD and NZD/USD Fundamental Daily Forecast – RBA May Be Forced to Cut Rates Despite Contrary Polls

The Australian and New Zealand Dollars are inching lower ahead of a major interest rate and policy decision by the Reserve Bank of Australia (RBA), due to be released at 03:30 GMT. Ahead of the announcements, investors are watching for developments on the ongoing virus outbreak that has dented sentiment in recent days as questions remain over its potential economic impact.

At 03:59 GMT, the AUD/USD is trading .6688, down 0.0004 or -0.06% and the NZD/USD is at .7456, down 0.0008 or -0.12%.

What We Could See From RBA Policymakers

“An easing bias would not surprise at all with the RBA well short of their inflation and unemployment goals. NAB looks for the RBA to ease at the April Board meeting when the RBA will have had time to review December quarter growth including consumer spending,” David de Garis, a director and senior economist at National Australia Bank (NAB) wrote in a Tuesday note.

In late 2019, RBA policymakers maintained that it sees the Australian economy at a “gentle turning point”, but that it will continue to monitor the efficacy of previous interest rate cuts on economic fundamentals.

Although the markets are expecting no change in interest rates, the RBA will likely downgrade its guidance for future growth, and acknowledge that further interest rate cuts may be required to see its policy objectives hit.

Traders should keep attuned as to how the RBA addresses the impact of the coronavirus, bushfires and the drought on the economy.

After the government reported better than expected jobs and inflation data in January, the implied odds of an interest rate cut from the RBA at today’s meeting dropped to around 10 percent. This is down from roughly 50/50 odds interest rate traders had been giving in the middle of January.

The odds of a rate cut have crept back to around 20 percent in recent days, as panic builds about the possible economic impact of the coronavirus. However, the consensus view amongst economists and traders alike remains that the RBA will keep policy steady at this meeting, with market pricing suggesting the next cut will likely instead arrive in April.

Daily Forecast

A surprise cut by the RBA could send the AUD/USD plunging through the October 2, 2019 main bottom at .6671. There is no major support under this level until the March 3, 2009 main bottom at .6285.

If the RBA leaves rates unchanged, but hints at an April rate cut then don’t be surprised by a short-covering rally.