AUD/USD and NZD/USD Fundamental Weekly Forecast – Focus Remains on Vaccine, US Stimulus

The Australian and New Zealand Dollars closed higher last week with most of the rally attributed to a weaker U.S. Dollar, which plunged to a 2-1/2 year low against a basket of major currencies. Hopes for a vaccine-fueled global recovery next year and expectations of fresh fiscal stimulus from the U.S. government were the catalysts behind the jump in demand for riskier currencies and other assets.

Last week, the AUD/USD settled at .7428, up 0.0042 or +0.56% and the NZD/USD finished at .7039, up 0.0015 or +0.21%.

Both currencies have rallied in recent weeks as investors chose to focus on the future prospects of a COVID-19 vaccine and the ensuing global rally in risk assets, rather than the worldwide resurgence in infections.

Its U.S. counterpart was pressured by weak economic data that will likely put pressure on Congressional policymakers to move forward swiftly with a new round of fiscal stimulus. Soft U.S. jobs data solidified expectations of a fresh economic package, supporting the Aussie.

RBA Holds Rates

The Reserve Bank of Australia (RBA) held steady on its rates last week as widely expected. The bank left its cash rate at a record low 0.1% and maintained its A$100 billion quantitative easing program.

“For its part, the Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 percent target range,” RBA Governor Philip Lowe said in a statement. “The Board will keep the size of the bond purchase program under review, particularly in light of the evolving outlook for jobs and inflation. The Board is prepared to do more if necessary.”

RBA Prepared to Boost Stimulus if Needed:  Lowe

Australia’s top central banker struck an optimistic note about the country’s economy, but warned a recovery from the coronavirus pandemic would be bumpy and uneven, signaling the need for policy support for a long time to come.

Economic growth is expected to be “solidly positive” in both the September and December quarters, RBA Governor Philip Lowe said at an appearance before a parliamentary economics committee.

“There is still a high degree of uncertainty about the outlook,” Lowe said.

“What has become clearer, though, as time has passed is that Australia is likely to experience a run of years with unemployment too high and wage increases and inflation too low, leaving us short of our goals,” Lowe added.

Weekly Forecast

This week’s light economic scheduled means the focus will remain on the surge in COVID-19 cases, the vaccines and U.S. Fiscal stimulus. The big concern is that the surge in cases will continue to dampen the effectiveness of the vaccine over the near-term. Meanwhile, the fiscal stimulus bill may more swiftly through Congress as policymakers seem to finally realize the economy needs help.

We aren’t sure how much of the stimulus news is already priced into the market, it is bullish news because it will weaken the U.S. Dollar, but trader reaction so far has been muted.