AUD/USD and NZD/USD Fundamental Weekly Forecast – Facing Fresh Omicron Coronavirus Headwinds

The Australian and New Zealand Dollars lost ground last week as an early attempt to breakout to the upside on the daily chart, failed to attract enough buyers to sustain the rally. The week started with impressive demand for riskier currencies, but that move was dampened by the promise of future interest rate hikes by the U.S. Federal Reserve and a surprising rate hike by the Bank of England.

Last week, the AUD/USD settled at .7126, down 0.0046 or -0.64% and the NZD/USD finished at .6736, down 0.0062 or -0.92%. The Invesco CurrencyShares Australian Dollar Trust ETF (FXA) closed the week at $70.70, down $0.45 or -0.63%.

In addition to the hawkish activity by outside central banks, the Aussie and Kiwi succumbed to weak disappointing domestic data, weak economic news out of China and falling commodity prices especially crude oil. Meanwhile, new worries about the economic impact from the Omicron coronavirus variant infiltrated the market throughout the week, weighing on sentiment.

Australian Dollar Recap

Australian consumer sentiment declined in December as concerns mounted about the new omicron variant of coronavirus in the nation’s recently reopened eastern states of New South Wales and Victoria.

The consumer confidence index dropped 1% to 104.3 points in December, Westpac Banking Corp. said in a statement last Wednesday. Optimists still outweighed pessimists, with 100 points the dividing line between the two.

In other news, Australian employment blew past all expectations in November as coronavirus lockdowns were lifted, driving the unemployment rate sharply lower in a major boost to the economic outlook.

The Australian Bureau of Statistics showed employment jumped a record 366,100, while the jobless rate dropped to 4.6%, from 5.2% in October, well under forecasts of 5.0%.

The upside surprise came just as the head of the Reserve Bank of Australia (RBA) opened the door to an early end to bond buying should the recovery outpace expectations.

New Zealand Dollar Recap

New Zealand’s gross domestic product (GDP) shrank 3.7% in the third quarter from the previous quarter, the second largest decline on record, as the economy was hit by an outbreak of the Delta variant of COVID-19, official data showed on Thursday.

The figure was not as bad as expected by economists polled by Reuters, who had forecast production-based growth would shrink 4.5% for the quarter, while the Reserve Bank of New Zealand had penciled in a drop of 7.0%.

In other news, Final ANZ Business Confidence came in at -23.1, lower than the previously reported -16.4. The figures indicate a bearish outlook for the economy over the near-term.

Weekly Outlook

“While high vaccination rates have allowed the ‘delta states’ to reopen, there appears to be a heightened sensitivity to virus developments in those states where there is likely more concern about the newly emerging Omicron strain,” Westpac Chief Economist Bill Evans said.

The lifting of restrictions in Australia and New Zealand prompted an initial surge in mobility and activity in parts of November and early December. But Omicron cases are again on the rise, with a surge in infections reported last week and expected this week as authorities struggle to contain the variant.

Meanwhile, in both countries consumers continue to grapple with rising awareness about inflation, which is one reason to expect slower growth in the fourth quarter and perhaps the first quarter of 2022.

Safe-haven buying of the U.S. Dollar, due to the rapidly spreading coronavirus, is likely to weigh on the Australian and New Zealand Dollars this week, which will be shortened by one day due to the Christmas holiday.