AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Monetary Policy Decisions Move to Forefront

The Australian and New Zealand Dollars are trading slightly lower early Tuesday after posting a dramatic reversal and higher close the previous session. The volume is light and the trading ranges tight as traders await the Reserve Bank of Australia (RBA) monetary policy decisions, while anticipating the results of the U.S. presidential election late Tuesday or early Wednesday.

At 01:29 GMT, the AUD/USD is trading .7049, down 0.0008 or -0.11% and the NZD/USD is at .6627, down 0.0007 or -0.11%.

Economic News

On Monday, Australia’s AIG Manufacturing Index came in at 56.3, up from 46.7. ANZ Job Advertisements rose to 9.4% from and upwardly revised 8.3% and Building Approvals jumped 15.4%, well above the 1.5% estimate and downwardly revised -2.3%.

Australia AIG Performance of Manufacturing Index jumped 9.6 points to 56.3 in October, the first expansion reading since July.

AIG Chief Executive Innes Willox said:  “With the quantity of fiscal support easing in October and with the tax cuts only just starting to flow through, the lift in sales and the strong growth of new orders are particularly encouraging signs of improving household and business confidence. The solid national performance was achieved despite another month of contraction in Victoria. With restrictions in Victoria being lifted there are very good prospects of further strength in the closing months of 2020”.

Australian job advertisements rose for the sixth straight month in October as the labor market slowly heals from coronavirus lockdowns, though ads are still not back to where they were before the pandemic hit.

The total number of building permits issued in Australia jumped a seasonally adjusted 15.4 percent on month in September, the Australian Bureau of Statistics said on Monday – coming in at 15,827. The rise was driven by private sector dwellings excluding houses, which increased by 23.4 percent in September, but remains 12.1 percent lower than at the same time last year.

In New Zealand, the total number of building permits issued was up a seasonally adjusted 3.6 percent on month in September, Statistics New Zealand said on Monday – coming in at 3,605.

Daily Forecast

At 03:30 GMT, the Reserve Bank of Australia (RBA) will release its latest monetary policy decisions.

The latest survey shows that two-thirds of Australian economists expect the RBA to cut rates to 0.10% from the current 0.25%.

Policymakers are also expected to extend its asset purchase program. That is, both increasing the size (the consensus is around an additional AUD 160B), and extending the duration of the yield control (from the current five years to ten years). The market will likely interpret that as very dovish.

As far as the downside is concerned, a rate cut and duration extension should be bearish, but much of the move may have already been priced into the market. Furthermore, holding an excessively short position into the U.S. presidential election may be very risky, considering that Democratic Joe Biden may win. He’s pro-stimulus, which could pressure the U.S. Dollar.

On the other side of the coin, if the RBA leaves rates unchanged then look for a spike to the upside by the AUD/USD.