AUD/USD and NZD/USD Fundamental Weekly Forecast – Focus May Shift to U.S. Non-Farm Payrolls Report

Both the Aussie and Kiwi plunged last week in reaction to a steep drop in global equity markets, especially in China. A drop in the Chinese Yuan to a multi-year low also pressured both currencies.

The AUD/USD settled the week at .7087, down 0.0033 or -0.46% and the NZD/USD closed the week at .6521, down 0.0070 or -1.06%.

During the week, RBA Assistant Governor Guy Debelle argued that stable interest rates are a good thing given that they have given businesses and households certainty and confidence to borrow and invest or spend. Debelle also said that the Reserve Bank doesn’t intend to lift rates just to put more gunpowder aside for a possible downturn that may not materialize.

In New Zealand, rising demand for imported goods has pushed the country’s trade balance to its widest deficit for a June year in a decade, Statistics New Zealand said.

The country’s annual trade deficit widened to $4 billion in the June year, from a deficit of $3.66 billion a year earlier, Stats NZ said. Annual imports increased by $6.02 billion to $59.55 billion, while exports rose by $5.65 billion to $55.52 billion.

U.S. Dollar’s Impact

Safe-haven buying drove the U.S. Dollar to a multi-month high as investors sought shelter from another week of losses in global stock markets as well as rapidly rising volatility. Several factors actually contributed to the wild swings in the equity markets including a few earnings disappointments, fear of rising interest rates, a simmering conflict between the European Union and the Italian government, Western criticism of oil power Saudi Arabia after the killing of dissident journalist Jamal Khashoggi, and worries about slowing global economic growth.

As far as economic news was concerned, Core Durable Goods Orders failed to impress with a 0.1% reading. Traders were looking for a 0.5% increase. Advance GDP came in higher-than-expected at 3.5% versus a 3.3% forecast and 4.2% reading at the end of the second quarter.

Additionally, the Commerce Department said the PCE price index, the Fed’s key measure of inflation, increased by 1.6 percent last quarter, much less than the 2.2 percent increase expected by economists.

A jump in consumer spending was the surprise of the day. Consumer spending, which accounts for more than two thirds of U.S. economic activity, grew by 4 percent in the third quarter, the strongest since the fourth quarter of 2014.

The surge in consumer spending was necessary to help overall GDP expansion because business spending declined 7.9 percent. This was the biggest quarterly decline in business spending since the first quarter of 2016.

Housing data also shook up traders with New Home Sales coming in at 553K versus a 627K forecast. The previous month was also revised lower to 585K.

Forecast

It’s going to be a pretty busy week for AUD/USD and NZD/USD traders. Not only are they going to have to deal with the possibility of heightened volatility in the stock market, but both the U.S. and Australia are poised to release several important economic reports.

In the U.S., the first major piece of data is the Conference Board’s Consumer Confidence report, due to be released on Tuesday. It is expected to come in at 136.3, down from 138.4. On Thursday, ISM Manufacturing PMI is expected to dip slightly to 59.0 from 59.8.

On Friday, in the Non-Farm Payrolls report, the Non-Farm Employment Change is expected to show the economy added 191K jobs in October. The Unemployment Rate is expected to rise slightly from 3.7% to 3.8%. Average Hourly Earnings are estimated to have risen by 0.2%.

On Wednesday, Australia will release its latest report on consumer inflation. Quarterly CPI is estimated to have risen by 0.5%, up from 0.4%. Trimmed Mean CPI is forecast to have risen 0.4%, down from 0.5%.

On Friday, Australian Retail Sales are expected to come in at 0.3%, matching last month’s gains.