AUD/USD and NZD/USD Fundamental Weekly Forecast – Aussie Traders Watching China PMI Data, Kiwi Traders Focused on Employment Data

The Australian and New Zealand Dollars finished the week lower although there was some giveback late in the week due to oversold conditions and mixed U.S. economic data. By the end of the week, however, both currencies were essentially on the same page as far as central bank policy is concerned with investors pricing in near-term rate cuts.

Last week, the AUD/USD settled at .7039, down 0.0113 or -1.57% and the NZD/USD closed at .6656, down 0.0031 or -0.47%.

Heightened volatility was the theme last week, not only because of the economic news, but because of an extended Easter holiday at the start of the week and another bank holiday at mid-week. Because of this, some of the price action may have been exaggerated at times.

Australian Dollar

The major event for the week was the release of the quarterly Consumer Price Index report and the quarterly Trimmed Mean CPI report.

Australian’s headline inflation rate came in flat for the March quarter against expectations of a 0.2 percent increase. The annual rate of 1.3 percent was the weakest since the third quarter of 2016.

After the release of the reports, financial market traders moved from pricing in about a 20 percent chance of the Reserve Bank of Australia cutting interest rates in May to about a 60 percent chance.

New Zealand Dollar

The New Zealand Dollar was dragged lower by the severe sell-off in the Australian Dollar. A similar miss in New Zealand inflation data released earlier in April drove the chances of a Reserve Bank of New Zealand rate cut in May to 50 percent. After the release of the Australia CPI data, the odds moved to a 66 percent chance.

Late in the week, the New Zealand Dollar clawed back some of its earlier weekly losses after Statistics New Zealand reported that the trade balance logged a surplus of NZ$922 million in March, which was far above the median forecast of NZ$131 million. The trade balance showed a deficit of NZ$68 million the month before. Exports also climbed to NZ$5.7 billion in March. This was the highest level on record.

However, the news wasn’t all rosy. The quarterly figure was dismal. The trade balance showed a deficit of NZ$1.0 billion in the March quarter even as exports rose 2.0%, while imports fell 2.5%.

Weekly Forecast

This week, the price action in the Australian Dollar is likely to be driven by China Manufacturing PMI on Tuesday, China Caixin Manufacturing PMI on Thursday and Australian Building Approvals on Friday.

The price action in the New Zealand Dollar will be primarily driven by the Employment Change and Unemployment Rate report on Wednesday.

Volatility this week could be fueled by the U.S. Federal Reserve’s interest rate and monetary policy decisions on Wednesday. Traders are looking for the Federal Open Market Committee to continue holding borrowing costs steady for the third time this year. Over the past few weeks, policymakers in their speeches have all basically said that interest rates were currently in the right place.

Traders should also look for the possibility of downgraded views of inflation from the Fed. Additionally, some are expecting the Fed to more clearly define their patient stance.