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AUD/USD and NZD/USD Fundamental Weekly Forecast – Aussie Focus on Trade Balance, Kiwi Focus on Employment Change

James Hyerczyk
New Zealand Dollars
New Zealand Dollars

The Australian and New Zealand Dollars posted a mostly sideways trade last week before settling lower. The price action was mostly manipulated by volatility in the Treasury markets, appetite for risk, concerns over the U.S.-China trade dispute and a few domestic reports.

For the week, the AUD/USD settled at .7402, down 0.0016 or -0.22% and the NZD/USD settled at .6796, down 0.0012 or -0.17%.

In New Zealand, the Trade Balance came in lower than expected at -113 Million versus a 200 Million estimate.

In Australia, the Consumer Price Index posted a solid 0.4% reading, but the figures came in below the 0.5% forecast. Trimmed Mean CPI stayed at 0.5%. Despite the strong readings, the numbers were not likely to alter the dovish monetary policy of the Reserve Bank of Australia. They are not likely to make a change until late 2019 or early 2020 and this is not likely to occur unless rising wages drag up inflation.

In the U.S. last week, Flash Manufacturing PMI came in better than expected along with the Richmond Manufacturing Index. Housing continued to disappoint with Existing Home Sales falling to 5.38 million units versus a 5.46 million unit forecast. New Home Sales also missed the mark with 631K units versus a 669K estimate.

The major reports included Durable Goods and Advance GDP. New orders for key U.S.-made capital goods increased more than expected in June and shipments surged, pointing to solid growth in business spending on equipment in the second quarter. Second-quarter GDP was the best in nearly 4 years, at 4.1 percent. The dollar weakened on Friday after the release of the GDP data as investors expressed doubt the growth would continue the rest of the year.

Forecast

Economic data will dominate the trade this week.

New Zealand

Early Tuesday ANZ Business Confidence will be released. The last report came in at -39.0. Early Wednesday, Employment Change is expected to come in at 0.4%, down from 0.6%. The Unemployment Rate is expected to remain at 4.4%.

Australia

Early Thursday, look for the Trade Balance to come in at 0.91 Billion, up from 0.83 Billion. On Thursday, the Retail Sales report is expected to show a slight decline from 0.4% to 0.3%.

United States

Traders will also get the opportunity to react to a slew of U.S. Economic data.

On Tuesday, investors will get the opportunity to react to the Conference Board’s Consumer Confidence report. It is expected to come in slightly higher at 126.5 versus 124.4. Last month’s report came in below expectations, but traders showed no reaction to the news because the index remains at historical levels.

The U.S. Federal Reserve’s Federal Open Market Committee will embark on its two-day meeting on Tuesday, although not much is expected to result from that. Still, investors will be watching for clues as to whether the central bank will raise rates for the fourth time this year in December. Furthermore, Fed officials may make comments on the impact of tariffs and the robust second-quarter GDP report.

On Wednesday, investors will get the first look at U.S. employment data with the release of the ADP Non-Farm Employment Change report. It is expected to show the private sector added 186K jobs in July. ISM Manufacturing PMI is expected to come in at 59.4, slightly below the previously reported 60.2.

Finally, Friday’s U.S. Non-Farm Payrolls report is expected to show the economy added 193K jobs in June. The unemployment rate is expected to slip to 3.9% and Average Hourly Earnings are expected to increase 0.3%. Once again the focus will be on wages. Higher wage growth will keep the Fed on track to raise rates at least two more times this year. ISM Non-Manufacturing PMI is expected to come in at 58.7, down from 59.1.

With the longer-term downtrend for the Australian and New Zealand Dollars fully intact due to the divergence in monetary policy between the hawkish U.S. Federal Reserve and the dovish Reserve Banks of Australia and New Zealand, the price action this week is likely to be determined by the direction of U.S. Treasury yields. They will be influenced mostly by the U.S. economic data especially Friday’s jobs report.

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