AUD/USD and NZD/USD Fundamental Weekly Forecast – Aussie, Kiwi Face Rate Cut Pressure

The Australian and New Zealand Dollars closed lower last week with both currencies pressured by potentially bearish actions by their respective central banks. Lower demand for higher-yielding assets and a stronger U.S. Dollar also weighed on the Aussie and the Kiwi.

The greenback was primarily supported by safe-haven demand after U.S. policymakers strongly suggested a much anticipated fiscal stimulus deal would not likely be agreed upon before the U.S. presidential elections on November 3.

Last week, the AUD/USD settled at .7077, down 0.0164 or -2.26% and the NZD/USD finished at .6605, down 0.0067 or -1.01%.

Australian Dollar

The Australian Dollar weakened last week after a top Reserve Bank of Australia (RBA) official said monetary easing would become more effective as the economy loosens its coronavirus restrictions, an indication another cut to the official cash rate was likely.

RBA Governor Philip Lowe also said the board was studying the benefits that might come from buying longer-dated government bonds as part of its monetary stimulus package to boost jobs and growth.

“When the pandemic was at its worst and there were severe restrictions on activity we judged that there was little to be gained from further monetary easing,” Lowe said in a speech in Sydney.

The solutions to the problems the country faced lay elsewhere,” Lowe added referring to fiscal policy, which he said, has provided “welcome support” to the economy.

“As the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction that was the case earlier.”

Lowe emphasized that creating jobs was the RBA’s “main focus”, with data on Thursday showing the unemployment rate had ticked up to 6.9% in September.

The implications of larger balance-sheet expansion by other central banks were another consideration as the RBA works at potential policy options, Lowe added.

“These are three of the complex issues we have been considering at our recent Board meetings,” Lowe said. “The Board will continue to review these and other issues at our upcoming meetings.

Weekly Forecast

Lowe’s speech prompted economists at Commonwealth Bank of America to revise their call to now predict a cut to the cash rate next month and additional bond purchases to lower yields on 5-10 year government bonds. They previously saw 0.25% as the lower bound of the current easing cyclWith the futures markets trending toward a rate cut and bond purchases by the RBA, prices are likely to feel pressure until they hit a value zone that is attractive to buyers. This is not likely until after the November 3 RBA meeting since there is always the possibility of a surprise in its monetary policy announcements.

Meanwhile, gains could be capped in the NZD/USD because of safe-haven demand for the greenback, and worries that the Reserve Bank of New Zealand is comfortable with taking its benchmark interest rate into negative territory in early 2021.