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James Hyerczyk

The Australian and New Zealand Dollar finished lower last week with most of the selling pressure generated by lower demand for risky assets related to the steep drop in global equity markets. Prices were also influenced by a stronger U.S. Dollar, which showed some strength at times because of improving economic data. Increased tensions between the United States and China also weighed on the currencies.

Last week, the AUD/USD settled at .7282, down 0.0003 or -0.04% and the NZD/USD finished at .6667, down 0.0054 or -0.80%.

The Aussie and Kiwi hit near two-week lows last week as risk appetite turned sour in the wake of a stock market rout and oil price slump. The losses came as the greenback and safe-haven Japanese Yen extended gains in sympathy with a tech sell-off that began the prior week with no apparent trigger, driving broader risk aversion.

In addition to the plunge in U.S. equity prices, a nearly 8% drop in U.S. crude prices also weighed on commodity-linked currencies. Traders also lost confidence in the speed of the global economic recovery after the U.S. Congress failed again to pass a stimulus bill.

However, not all the economic news was bad. Figures from the Australian Bureau of Statistics (ABS) showed the value of owner-occupied home loan commitments surged by the largest in a year in July as social distancing restrictions eased across the country. Additionally, a separate survey showed a measure of Australian consumer sentiment jumped 18% in September in what Westpac chief economist Bill Evans described as a “pleasant” surprise.

Weekly Forecast

There are a number of key economic events that will likely influence the direction of the Aussie and Kiwi in addition to risk sentiment driven by stock and crude oil prices.

In Australia, the key reports will be the Monetary Policy Meeting Minutes from the Reserve Bank (RBA), Employment Change and Unemployment Rate.

In New Zealand, investors will be looking to react to quarterly GDP data.

In the U.S., Tuesday marks the start of a two-day Federal Reserve monetary policy meeting.

The Australian Employment Change and Unemployment Rate reports are expected to show the dire effects of stricter mobility restrictions in the second most-populous state of Victoria to curb the coronavirus outbreak. Economists expect employment to fall by 50,000 and the jobless rate to jump to 7.7% in August, according to a Reuters poll.

Early Thursday, New Zealand will release its quarterly GDP data. It is expected to come in at -12.5% versus the previously reported -1.6%.

Looking ahead to the Federal Reserve announcements after the two-day meeting on September 16, we expect to see a very carefully worded statement. The Fed is going to have to demonstrate patience before lifting rates as it waits for the economy to pick back up. But there is bad news. It might not have much ammunition left in its arsenal to stimulate the economy if it ends up needing more help. Therefore, we expect Fed Chair Powell to target Capitol Hill and ask for Congress to do more.

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

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