AUD/USD and NZD/USD Fundamental Daily Forecast – Weak Business Confidence Report Sinks Kiwi

The Australian and New Zealand Dollars are trading lower on Monday as traders continue to price in additional rate cuts by their respective central banks. The Kiwi is under the most pressure following the release of a bearish report on business confidence. The Aussie is lower, but the selling is limited and volume is below average ahead of Tuesday’s Reserve Bank of Australia (RBA) interest rate decision and monetary policy statement.

At 07:21 GMT, the AUD/USD is trading .6750, down 0.0015 or -0.22% and the NZD/USD is at .6263, down 0.0034 or -0.53%.

New Zealand Dollar

The New Zealand Dollar is rapidly approaching a four-year low against the U.S. Dollar on Monday after data showed that business confidence in the country was deteriorating quickly amid a global economic slowdown, despite an aggressive rate cut by the central bank designed to prop up growth.

Earlier today, a survey by the bank ANZ showed that business confidence in New Zealand in September fell to its lowest level since April 2008, with 54 percent of respondents saying they expect business conditions to deteriorate in the next year.

RBNZ Sees Need to Improve Resilience of Financial System

On Monday, the RBNZ said in its 2018/19 annual report that New Zealand’s financial system is equipped to manage current risks but there is a need to improve resilience.

“Vulnerabilities remain,” the RBNZ said. “Debt levels are high, with lending and debt concentrated in housing and agriculture.”

“We need to improve the resilience of New Zealand’s financial system while conditions remain favorable, and we have been consulting on proposals to raise bank capital requirements.”

Australian Dollar

Australian Dollar traders are responding to expectations of another rate cut by the RBA on Tuesday, the first of at least two cuts by June, as market economists warn that interest rates are losing their power to rescue growth.

The Australian Financial Review’s economist survey for the September quarter predicts that cash rate will fall to 0.75 percent by the end of the year from 1 percent, and reach 0.5 percent by June, according to the median forecaster.

Daily Forecast

Last week, the RBNZ left its Official Cash Rate (OCR) unchanged and said, “The Monetary Policy Committee agreed that new information since the August Monetary Policy Statement did not warrant a significant change to the monetary policy outlook.” However, today’s report showing a deterioration in business confidence likely means a November rate cut is back on the table. This is helping to fuel the selling pressure.

As far as the Australian Dollar is concerned, traders are pricing in a 76 percent chance of 25 basis point cut to the cash rate on October 1. A reduction is fully priced in by November.