AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Minutes Show Resilient Economy Calls for More Rate Hikes

The Australian and New Zealand Dollars are trading mixed on Tuesday. Both are being underpinned by a slightly weaker U.S. Dollar and firm demand for higher risk, however, the Aussie is taking the lead after the Reserve Bank (RBA) monetary policy meeting minutes revealed it was primed for further monetary tightening.

At 07:27 GMT, the AUD/USD is trading .6864, up 0.0051 or +0.74% and the NZD/USD is at .6199, up 0.0045 or +0.73%. On Monday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $67.38, up $0.15 or +0.23%.

Hawkish RBA Minutes Lifting Aussie

In minutes of its July policy meeting, the Reserve Bank of Australia’s Monetary Policy Board agreed that the country’s economy continues to weather the storm successfully in the aftermath of the chaos created by the COVID-19 pandemic, minutes from the bank’s July 5 meeting revealed on Tuesday.

RBA board members said the current level of interest rates “was still very low for an economy with a tight labor market and facing a period of higher inflation.”

Members also acknowledged that inflation has risen and is expected to continue to do so, the minutes showed, so further steps will be necessary to normalize monetary policy conditions.

The RBA has raised rates by a bigger-than-expected 50 basis points at the meeting, the third hike in as many months.

Australian Jobs Data Shows Strong Momentum

Supporting the need for further rate hikes is jobs data released last week that showed net employment in Australia surged 88,400 in June from May, nearly thrice that of market forecasts of a 30,000 increase, while the unemployment rate dived to a 48-year low of 3.5%.

New Zealand Dollar Dips, Despite High Inflation, Rate Hike Expectations

The NZD/USD is trading lower after a quick rally on Monday, following a report that showed record inflation numbers.

Data released on Monday showed New Zealand consumer prices jumped 1.7% in the second quarter lifting annual inflation to a 32-year high of 7.3%, topping forecasts of 7.1%.

Annual inflation may have peaked, however, it’s still too uncertain for the Reserve Bank of New Zealand (RBNZ) to stop raising interest rates.

Traders are now expecting the RBNZ to hike rates 50 basis points in August and October. A 25 basis point rate hike is expected in November, which would bring the Official Cash Rate (OCR) to 3.75% at the end of the year.

Short-Term Forecast

Today’s RBA minutes indicate that investors should expect central bank policymakers to deliver four more successive 50-basis point rate hikes starting with the next meeting in August, bringing the cash rate target to 3.35% by November.

While RBA rates hikes tend to be supportive for the AUD/USD, in this case, gains are likely to be limited because of the stronger U.S. Dollar. The greenback is expected to be supported by an even more aggressive Federal Reserve with 75 to 100 basis point rate hikes likely to be on the table at its July 26-27 policy meeting.