AUD/USD and NZD/USD Fundamental Weekly Forecast – Bearish as Traders Price in Potential Rate Cuts

There are no major reports out of Australia or New Zealand this week so traders are not likely to change their minds about a future rate cut by the RBA and RBNZ. This is likely to limit any gains. The wildcard will be news about a U.S.-China trade deal. The Aussie and Kiwi are likely to be supported by the announcement of a meeting between U.S. President Trump and China President Xi Jinping, or a trade deal which could bring an end to the year-long trade dispute.
James Hyerczyk
AUD/USD and NZD/USD

Australian and New Zealand Dollars finished mixed last week with the Aussie finishing lower and the Kiwi closing higher. Volatility was the theme last week with most of the bearish price action fueled by the weaker Australian Dollar. At times, the New Zealand Dollar piggy-backed the Aussie, but the two currencies parted ways late in the week, allowing the Kiwi to outperform the Aussie at the end of the week.

For the week, the AUD/USD settled at .7046, down 0.0034 or -0.48%. This is up from a low of .7003. The NZD/USD closed at .6803, up 0.0004 or +0.06%. Its low for the week is .6744.

Last week’s price action for both currencies was primarily driven by evidence of an economic slowdown in Australia, which supported market expectations for an interest rate cut later this year by the Reserve Bank of Australia (RBA).

The Australian Gross Domestic Product (GDP) report showed Australian economic growth came in at 0.2 percent in the fourth quarter, below the expected 0.3 percent.

The news was bearish for the Australian Dollar because it could encourage the RBA to turn dovish. The news encouraged investors to increase the chances of an RBA rate hike later in the year, which weighed on the currency. The New Zealand Dollar retreated in sympathy with the Australian Dollar as investors also increased the odds of a rate cut by the Reserve Bank of New Zealand (RBNZ).

The Aussie and Kiwi were further pressured by dovish tones from the European Central Bank and Bank of Canada.

The AUD/USD also felt some pressure by a weaker-than-expected trade balance report from China. On Friday, China reported worse than expected trade data for the month of February, customs data showed amid Beijing’s trade dispute with the U.S.

Dollar-denominated exports plunged 20.7 percent for the month of February from a year ago, missing expectations of a 4.8 percent decline. Dollar-denominated imports fell 5.2 percent in February from a year ago, missing economists’ forecast of a 1.4 percent fall.

Both the Aussie and the Kiwi mounted strong rebound rallies after the U.S. released a mixed jobs report. U.S. government data showed the economy added just 20,000 jobs in February, compared with estimates for a gain of 180,000 positions. Somewhat offsetting the news was a drop in the unemployment rate to 3.8 percent. Average hourly earnings were another positive, increasing by 3.4 percent on year over year.

Weekly Forecast

There are no major reports out of Australia or New Zealand this week so traders are not likely to change their minds about a future rate cut by the RBA and RBNZ. This is likely to limit any gains.

However, traders could be forced to make adjustments to their bearish tones by weaker than expected U.S. economic data. At the forefront this week will be reports on U.S. Retail Sales, Durable Goods, Consumer Inflation and Producer Inflation. Fed Chair Powell is also scheduled to speak.

The wildcard will be news about a U.S.-China trade deal. The Aussie and Kiwi are likely to be supported by the announcement of a meeting between U.S. President Trump and China President Xi Jinping, or a trade deal which could bring an end to the year-long trade dispute.

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