AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Minutes Should Reaffirm Divergence From Fed Policy

Investor concerns over a possible escalation of a trade war between the U.S. and China weighed on the AUD/USD and NZD/USD on Monday. The Aussie was the weaker of the two as investors positioned themselves ahead of today’s release of the Reserve Bank of Australia Monetary Policy Meeting Minutes and the quarterly HPI report at 0130 GMT.

The AUD/USD reached a low of .7413 late in the session, just slightly above its May 9 bottom at .7412. The next target under this level is the June 2, 2017 bottom at .7372. The NZD/USD wasn’t as nearly as weak, still holding well above bottoms reached at .6883 and .6850 over the past month.

The overall tone in the market is bearish because of the divergence between the monetary policies of the hawkish U.S. Federal Reserve and the dovish Reserve Bank of Australia and New Zealand. We may find out how wide the gap between the Fed and the RBA actually is early Tuesday with the release of its minutes.

On top of the bearishness fueled by central bank activity, Aussie and Kiwi traders are also in a defensive mode due to the US-China trade spat that puts global economic growth at risk.

Forecast

Lingering concerns over the US-China trade dispute could continue to pressure the AUD/USD and NZD/USD or at the least limit their upside potential if there is a short-covering rally. The fact that both Forex pairs haven’t “crashed” suggests that investors feel that some solution will be reached as long as both parties are still at the negotiation table.

If the worst case scenario for the Aussie and Kiwi, an end to trade talks and further retaliation by the U.S. and/or China could fuel a more severe break.

In economic news, the RBA will release the minutes of its June meeting at 0130 GMT. At this meeting it kept rates on hold at the record low 1.5 percent for the 20^th consecutive month. Currently, traders don’t see the RBA lifting Australia’s official cash rate until mid-2019 or even 2020.

Recently, RBA Governor Philip Lowe said that a rate hike is “some time away”. Therefore, we don’t expect to see any surprises in today’s minutes.

Also in Australia, the Bureau of Statistics will release its quarterly house price index. The report is expected to show that Australian house prices declined 1.5 percent since the last quarter, reflecting weaker growth in Sydney and Melbourne.

In my opinion, the key market driver will be any new developments over the trade issue between the US and China.