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AUD/USD and NZD/USD Fundamental Daily Forecast – RBNZ Could Turn Dovish on Long-Term Interest Rate Outlook

By:
James Hyerczyk
Updated: Aug 17, 2022, 01:47 UTC

The RBNZ may have to shift their focus from fighting inflation to paying more attention to the developing weakness in the economy.

NZD/USD, AUD/USD

In this article:

The New Zealand Dollar and Australian Dollar are putting in a mixed performance on Wednesday shortly before a couple of domestic events that should have a major influence on both currencies. After that, the focus will shift to the U.S. where the government will release the latest data on retail sales and the Fed will reveal the minutes from its July meeting.

At 01:13 GMT, the NZD/USD is trading .6343, down 0.0003 or -0.04% and the AUD/USD is at .7024, up 0.0001 or +0.01%. On Tuesday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) is at $69.58, up $0.06 or +0.09%.

RBNZ Set for Fourth 50-bp Rate Hike, Economists Predict Lower Peak

The Reserve Bank of New Zealand (RBNZ) is widely expected to announce an increase to its Official Cash Rate for the fourth straight time at 02:00 GMT. That seems to be a given since the price action suggests this rate hike has already been priced into the currency.

The surprise is, most economists see rates peaking below policymakers’ forecast after the most aggressive tightening in two decades to tame soaring inflation. If the RBNZ confirms the prediction, then the news would create a slightly dovish tone. This could put some additional pressure on the NZD/USD since bullish traders, playing for more aggressive future rate hikes, would be forced to make adjustments to their positions.

According to Reuters, some analysts are even looking for cuts in the Official Cash Rate as soon as 12 months from now, which is keeping traders cautious as they wait to take the pulse of this week’s RBNZ statement.

With the outlook about the economy becoming more uncertain, as activity softens and inflation pressures remain stronger than expected, the RBNZ may have to shift their focus from fighting inflation to paying more attention to the developing weakness in the economy.

Most economists expect the RBNZ to raise the OCR to 3.00% at this meeting. However, look for changes in its long-term outlook. At its last meeting, the RBNZ signaled plans to increase the rate to 4.00% by mid-2023. At today’s meeting, officials are expected to lower that target and could actually discuss plans to start easing again. Perhaps as early as mid-next year.

Aussie Trader Waiting for Wage Price Index

The Australian Bureau of Statistics (ABS) will release its quarter update on wages on Wednesday at 01:30 GMT. The report is expected to show modest wage growth despite the highly competitive job market and the rising cost of living.

The Wage Price Index for the second quarter is tipped to lift by around 0.8 percent in the three months to the end of June, for annual growth of 2.7 percent. Wages rose 0.7 percent in the March quarter, with annual growth at 2.4 percent.

US Retail Sales, FOMC Minutes on Tap

Following the release of the RBNZ decisions and the Australian wage data, traders will quickly shift their focus to the U.S. Retail Sales report, due to be released at 12:30 GMT and the Federal Open Market Committee’s (FOMC) July meeting minutes at 18:00 GMT.

The report and the minutes could be the source of volatility. Strong retail sales numbers should greenlight the Fed into continuing its aggressive rate hike plans. This would be bullish for the U.S. Dollar.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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