AUD/USD and NZD/USD Fundamental Daily Forecast – RBNZ Keeps Cash Rate Unchanged

The Australian and New Zealand Dollars finished slightly better on Wednesday after posting a choppy, two-sided trade. Both currencies started the session higher with the Kiwi boosted by better-than-expected ANZ Business Confidence data.

However, the AUD/USD and NZD/USD erased most of early gains before spiking to their highs for the day following the release of the U.S. Federal Reserve interest rate decision, monetary policy statement, economic projections and Fed Chair Jerome Powell’s press conference. Traders couldn’t hold on to most of these gains either and prices retreated into the close.

Although the Fed raised its target overnight rate by 25-basis points to a range of 2 percent to 2.25 percent, up from 1.75 percent to 2 percent, the central bank dropped the word “accommodative” from it statement in how it describes its monetary policy.

That move raised the most questions with some traders saying this likely means that the Fed no longer believes its policy is accommodative, and it’s likely closer to being done with its rate hikes. The initial price action suggested the market first interpreted the word’s removal as “the end of the Fed tightening cycle.” However, Powell said the removal of that word does not signal any change in the bank’s path toward normalizing monetary policy.

The Aussie and Kiwi were also supported by comments from Fed Chair Powell who said he does not see a buildup in fundamental inflation and does not anticipate prices surprising to the upside.

“The main thing where we might need to move along a little bit quicker if inflation surprises to the upside. We don’t see that,” Powell told reporters during his quarterly news conference Wednesday.

Forecast

The Australian and New Zealand Dollars are trading mixed early Thursday, but inside the previous day’s range. The Aussie is being supported by lower Treasury yields. The Kiwi is being pressured by another dovish interest rate decision and monetary policy statement by the Reserve Bank of New Zealand (RBNZ).

The RBNZ kept its official cash rate at a record low of 1.75 percent, in a broadly expected decision. The central bank has not moved its cash rate since November 2016 and the RBNZ’s monetary policy statement confirmed the rate would remain on hold into 2020, with both a shift up or down still possible.

While RBNZ governor Adrian Orr said there were welcome signs inflation was rising, downside risks to growth remained, particularly “trade tensions” between some major global economies.

Orr also said a lower exchange rate and international economic growth, combined with domestic investment from both households and the government, were expected to support growth.

Later today, investors will get the opportunity to react to a slew of U.S. economic reports.

Major reports:  Core Durable Goods Orders are expected to have risen 0.4%. Durable Goods Orders are forecast to have risen 1.9%. Final GDP is expected to come in at 4.2%.

Minor reports include Goods Trade Balance, Preliminary Wholesale Inventories, Pending Home Sales and Weekly Unemployment Claims.

Federal Reserve Chairman Jerome Powell is also scheduled to speak at 2030 GMT.

In addition to a possible reaction to these reports, traders are likely to continue to make adjustments to the Fed announcements.