AUD/USD and NZD/USD Fundamental Weekly Forecast – Powell’s Testimony to Have Major Impact on Aussie, Kiwi

Powell is likely to reiterate his “wait and see” and “data determinant” approach. He’s not likely to tip his hand because he knows he can impact the financial markets. No matter what he says, the markets will be impacted. He just want to minimize the volatility.
James Hyerczyk

The Australian and New Zealand Dollars finished lower last week with both currencies posting potentially bearish closing price reversal tops. The moves indicate the selling is greater than the buying at current price levels, but not necessarily a resumption of their weekly downtrends yet.

What we could be seeing at this time is position adjustments in reaction to the uncertainty over whether the Federal Reserve will cut rates at the end of July or not. Furthermore, investors still aren’t sure if the Reserve Bank of Australia (RBA) or the Reserve Bank of New Zealand (RBNZ) will cut rates as soon as August or wait until later in the year.

Last week, the AUD/USD settled at .6980, down 0.0042 or -0.60% and the NZD/USD closed at .6629, down -.0089 or -1.32%.

Australian Dollar

The RBA cut interest rates to an historic low of 1 percent last week. In doing so, it highlighted concerns over rising unemployment and a slowing economy. The 0.25-percentage point cut follows a similar move at June’s meeting and is the first back-to-back cut since 2012, amid fears of a global financial meltdown flowing from European banks.

The RBA’s decision was largely expected, with the market pricing a roughly 80 percent chance of a cut ahead of the Reserve Bank’s board meeting.

Recent data from Australia showed that unemployment has been steadily rising in recent months, from a trough of 4.9 percent earlier in the year, and stood at 5.2 percent in May, while GDP growth has fallen to just 2 percent, the weakest reading since the immediate aftermath of the global financial crisis 10 years ago.

RBA Governor Philip Lowe said after the release of the statement that lower interest rates could help advance the RBA’s goal, and did not rule out further cuts. He further added that lower interest rates could help advance the RBA’s goal, and did not rule out further cuts.

New Zealand Dollar

There were no major releases from New Zealand with most traders primarily focused on key events in the United States. Minor reports included NZIER Business Confidence. It came in at -34, well below the previous -29. This was an indication that business leaders expect the current economic weakness to worsen. The big positive surprise was the 13.2% jump in Building Consents from the previously reported -7.9%.

Additionally, the GDT Price Index fell 0.4% and ANZ Commodity Prices fell 3.9%.

United States

The Aussie and Kiwi started to show signs of weakness last week after the U.S. ISM Manufacturing PMI report came in better than expected at 51.7. This was offset, however, by the ISM Non-Manufacturing PMI report which came in slightly below expectations at 55.1.

The major market moving event was the U.S. Non-Farm Payrolls report. The headline number showed the economy added a robust 224K jobs in June. This was well above the 162K forecast. The unemployment rate edged up to 3.7%. The closely watched average hourly earnings number, which is used as an inflation indicator, fell short of expectations, rising 0.2% on a monthly basis versus 0.3% growth expected. On an annual basis, wages were up 3.1%.

Weekly Forecast

This week, all of the major events are tilted toward the United States. They include one speech from Fed Chair Jerome Powell on Tuesday, and two days of testimony on Wednesday and Thursday. Key reports include U.S. Consumer and Producer Inflation.

Powell is likely to reiterate his “wait and see” and “data determinant” approach. He’s not likely to tip his hand because he knows he can impact the financial markets. No matter what he says, the markets will be impacted. He just want to minimize the volatility.

Look for the AUD/USD and NZD/USD to weaken if Powell reins in market expectations for a July 31 rate cut, and for their rallies to possibly resume if he reinforces market expectations for a late July rate cut.

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