AUD/USD and NZD/USD Fundamental Daily Forecast – RBA, RBNZ Expected to Continue Aggressive Policy Tightening

The Australian and New Zealand Dollars edged higher on Friday as traders continued to react to softer-than-expected U.S. consumer and producer inflation data that lowered the chances of a 75-basis-point rate hike by the Federal Reserve in September and higher expectations of a 50-basis-point rate hike. The news drove down U.S. Treasury yields and the U.S. Dollar earlier in the week.

On Friday, the AUD/USD settled at .7123, up 0.0016 or +0.23% and the NZD/USD finished at .6455, up 0.0024 or +0.37%. The Invesco CurrencyShares Australian Dollar Trust ETF (FXA) closed at $70.58, up $0.29 or +0.41%.

At the end of the week, there was some chatter circulating that the lowering of the odds of an aggressive rate hike by the Fed could also weigh on the Reserve Bank of Australia’s (RBA) plans to raise rates by 50 basis points next month and the Reserve Bank of New Zealand’s (RBNZ) rate hiking plans on August 17. However, that chatter may have been offset by hawkish comments throughout the week.

Fed Members Pushing Hawkish Agenda

Last Wednesday, Minneapolis Fed President Neel Kashkari said he is sticking to his view that the U.S. central bank will need to raise its policy rate another 1.5 percentage points this year and more in 2023, even if that causes a recession.

Chicago Fed President Charles Evans said he believes the Fed has plenty more work to do before inflation is under control and San Francisco Federal Reserve Bank President Mary Daly warned on Thursday it is far too early for the U.S. central bank to “declare victory” in its fight against inflation.

These comments may be enough to curtail any chatter that other major central banks may be considering raising rates at a slower pace.

RBNZ Stays to Stay on Course with Aggressive Rate Hike This Week

Regardless of what some Aussie or Kiwi traders were thinking about rate hikes, a Reuters poll found that the RBNZ will stick to its hawkish stance and deliver a fourth straight half-point rate hike on Wednesday in its most aggressive tightening in over two decades to try to rein in stubbornly-high inflation.

With inflation not expected to ease anytime soon and the labor market remaining tight, the RBNZ is likely to stay focused on containing price pressures while trying not to tip the economy into a recession.

All 23 economists in the August 8-11 Reuters poll forecast rate setters at the RBNZ would hike its official cash rate by another 50-basis points at its August 17 meeting, taking it to 3.00%. It was 1.00% before the COVID-19 pandemic.