AUD/USD and NZD/USD Fundamental Weekly Forecast – Aussie Traders on Edge Ahead of RBA Monetary Policy Decision

The Australian and New Zealand Dollars finished mixed last week with the Aussie clawing back from early weakness and the Kiwi closing off its lows after a dovish signal from the Reserve Bank of New Zealand (RBNZ) fueled a massive one day break at mid-week. There were no major reports from Australia last week with most of the price action being driven by the RBNZ’s dovish comments.

Last week, the AUD/USD settled at .7096, up 0.0015 or +0.22% and the NZD/USD finished at .6806, down 0.0069 or – 1.00%.

The Australian Dollar traded relatively steady last week except for a one-day sympathy break fueled by the RBNZ which joined the other major central banks in shifting away from higher interest rates, saying its next move is more likely to be a cut, sending the New Zealand Dollar tumbling by the most in seven weeks.

“Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next OCR move is down,” Governor Adrian Orr said in a statement in Wellington after leaving the official cash rate at 1.75 percent. “Core consumer price inflation remains below our 2 percent target mid-point, necessitating continued supportive monetary policy.”

The RBNZ held its benchmark rate at a record low 1.75 percent, as expected, though the shift to explicitly favor a cut stunned investors as its projections last month showed the cash rate increasing in early 2021.

Weekly Forecast

New Zealand Dollar traders were surprised by the statement from the RBNZ, which was the reason for the steep sell-off. Many were looking for a rate cut late in the year in November, but the overtly dovish tone by the central bank likely means the rate cut move will come sooner than expected with some traders betting as early as August. A second rate cut is being priced in for the end of the year.

Australian Dollar traders will likely be on edge this week ahead of Tuesday’s Rate Statement and Wednesday’s Annual Budget Release. With the RBNZ signaling a rate cut last week, the RBA will be under pressure to indicate a similar shift in monetary policy. However, it may not make the same drastic statement as the RBNZ after softening its tone on tightening in February. Furthermore, policymakers may continue to cite the strong labor market as one reason not to project a rate cut.

This week’s price action could also be influenced by a slew of major U.S. economic data including Retail Sales, ISM Manufacturing PMI and Durable Goods. However, the major market moving event this week is likely to be the U.S. Non-Farm Payrolls report, especially because of last month’s major miss to the downside.

Traders expect the March Non-Farm Employment Change to show the economy added 175,000 jobs, up from 20,000. Average Hourly Earnings are expected to come in at 0.2% and the Unemployment Rate is expected to hold steady at 3.8%.

Another miss to the downside by payrolls could be supportive for the AUD/USD and NZD/USD especially after the Commerce Department reported on Friday muted price pressures, as measured by the Personal Consumption Expenditure index (PCE), the Federal Reserve’s preferred measure of inflation.

A combination of weak inflation and job market will mean the Fed was right in calling off its rate hikes for the rest of the year, but investors may read this as a sign the economy is headed toward a recession.