AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Sees Risks to the Household Sector

The Australian and New Zealand Dollars are trading nearly flat as investors await the release of China’s trade balance report. The report is expected to show the trade balance increased 2 billion. This would be far-below the previously reported 34 billion. The USD-Denominated Trade Balance is expected to come in at 7.7 billion, up from 4.1 billion.

Earlier in the session, Australia released the Reserve Bank of Australia Financial Stability Review. New Zealand released the Business NZ Manufacturing Index and Visitor Arrivals reports.

On Tuesday, both the Aussie and the Kiwi fell sharply after U.S. labor and inflation reports dampened concerns over a slowing economy, sending U.S. Treasury yields higher and increasing demand for the U.S. Dollar.

At 07:01 GMT, the AUD/USD is trading .7127, up 0.0005 or +0.09% and the NZD/USD is at .6730, up 0.0003 or +0.05%.

U.S. Weekly Jobless Claims

On Thursday, the U.S. Labor Department said initial claims for state unemployment benefits fell 8,000 to a seasonally adjusted 196,000 for the week-ended April 6, the lowest level since early October 1969. Economists were looking for an increase to 211,000 in the latest week.

U.S. Producer Price Index

The U.S. Labor Department said on Thursday that U.S. producer prices increased by the most in five months in March, but underlying wholesale inflation remained subdued.

The Producer Price Index for final demand rose 0.6 percent last month, lifted by a surge in the cost of gasoline. That was the largest increase since October 2018 and followed a 0.1 percent gain in February.

In the 12 months through March, the PPI rose 2.2 percent after advancing 1.9 percent in February. Economists estimated the PPI would climb 0.3 percent in March and increase 1.9 percent on a year-on-year basis.

The Core PPI increased 2.0 percent in the 12 months through March. That was the smallest annual increase since August 2017 and followed a 2.3 percent rise in February.

RBA Financial Stability Review

In its semi-annual assessment of the financial system early Friday, the Reserve Bank cited the danger of a “sharper downturn” in the global economy. It said while banks’ profits remain healthy, increased scrutiny and weaker property and housing credit meant “greater-than-usual uncertainty” about their outlook.

“Risks to the household sector have increased over the past six months given weak housing market conditions,” the RBA said. “Indicators of financial stress remain low outside the mining exposed regions. However, the value of housing loans in arrears has drifted up from very low levels.

“Global economic growth has slowed and downside risks to activity seem to have risen,” the RBA said. “This increases the likelihood of a sharp decline in growth which could be detrimental to financial stability.”

Daily Forecast

Our longer-term view is still bearish for the Australian and New Zealand Dollars.

In today’s Financial Stability Review, RBA policymakers focused heavily on highlighting the potential threats at home and abroad, while noting that at present there are no imminent dangers. This supports its decision to drop its tightening bias in favor of a neutral stance for the cash rate.

While the RBA has acknowledged that weaker consumer spending has dragged on economic growth, it’s now relying on unemployment at an eight-year low of 4.9 percent to ensure households stay solvent. Traders are betting that the next move is a rate cut by the RBA.

The New Zealand Dollar remains under pressure because traders are still preparing for a rate cut by the Reserve Bank of New Zealand. At its last policy meeting, the RBNZ said, “Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next OCR move is down.” Traders have priced in a rate cut for August, but some say it may come as early as May.