AUD/USD and NZD/USD Fundamental Weekly Forecast – RBA Cash Rate to Remain at 0.10%; No Early Lift-Off Seen

Australian and New Zealand Dollars closed sharply lower last week, weighed down by hawkish comments from U.S. Federal Reserve Chair Jerome Powell and worries about renewed restrictions due to the new Omicron coronavirus variant.

Weaker-than-expected economic data from China also put a lid on prices as well as general uncertainty ahead of Tuesday’s monetary policy decisions by the Reserve Bank of Australia.

Last week, the AUD/USD settled at .7000, down 0.0121 or -1.70% and the NZD/USD finished at .6747, down 0.0074 or -1.08%. The Invesco CurrencyShares Australian Dollar Trust (FXA) ETF settled at $69.53, down $1.210 or -1.71%.

Powell Says Fed Will Discuss Faster Tapering at December Meeting

Federal Reserve Chairman Jerome Powell indicated last Tuesday that the central bank could step up the removal of its efforts to boost the economy as it battles escalating inflation pressures.

In an appearance before a Senate committee, the Fed chief said he thinks reducing the pace of monthly bond buys can move more quickly than the $15 billion-a-month schedule announced in early November.

Powell said he expects the issue to be discussed at the December meeting.

“At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner,” he said. “I expect that we will discuss that at our upcoming meeting.”

The initial tapering schedule would have seen bond purchases wrap up around June; if the committee chooses to accelerate, that could mean a close earlier in the spring, giving the Fed leeway to raise interest rates anytime thereafter.

Omicron Risks Remain

Throughout the week, investors weighed the potential fallout from Omicron after the COVID-19 variant’s spread led to fresh lockdowns in Europe and fanned fears of a hit to global economic growth. However, over the weekend, South African officials said there are no signs that could prompt a panic as infections have been mild.

Weekly Outlook

The RBA is unlikely to spring any surprises at its December policy meeting based on recent comments from Governor Philip Lowe and due to the uncertainty caused by the Omicron variant. The RBA will release its latest policy decisions at 03:30 GMT.

All 34 economists in the latest Reuters poll expect the cash rate to remain at 0.10% on Tuesday, but a small majority now expects a rate rise in the first quarter of 2023.