AUD/USD and NZD/USD Fundamental Weekly Forecast – RBA Could Cut Benchmark Rate from 1.00% to 0.75%.

The Reserve Bank of Australia is expected to cut its benchmark interest rate 25-basis points on October 1 from 1.00% to 0.75%, however, there are still some who don’t believe they will.
James Hyerczyk
AUD/USD and NZD/USD

The Australian and New Zealand Dollars finished higher last week with both currencies supported by renewed optimism over U.S.-China trade relations. The Aussie, however, underperformed the Kiwi, with sellers motivated by dovish comments from Reserve Bank of Australia (RBA) Governor Philip Lowe and expectations of a rate cut by the central bank on October 1. The Kiwi was underpinned by a less-dovish than expected monetary policy statement by the Reserve Bank of New Zealand (RBNZ).

Last week, the AUD/USD settled at .6765, up 0.0001 or +0.02% and the NZD/USD closed at .6296, up 0.0037 or +0.60%.

Australian Dollar

Last week, the Aussie weakened after Governor Philip Lowe signaled further cuts to interest rates as early as this week to keep ahead of falling global rates while urging the nation’s businesses to use the abundance of cheap money to expand and hire more staff.

Speaking in the NSW Northern Tablelands town of Armidale on Tuesday night, Dr. Lowe said even though the national economy was now at a “gentle turning point”, there were still local and international risks and too many Australians were without a job or wanted more working hours.

Lowe acknowledged the RBA would have a difficult time trying to fight the trend in what appears to be a structural decline in global interest rates.

“We live in an interconnected world, which means that we cannot completely insulate ourselves from long-lasting shifts in global interest rate,” he said. “Our floating exchange rates give us a degree of monetary independence, but we can’t ignore structural shifts in global interest rates.

If we did seek to ignore these shifts, our exchange rate would appreciate, which, in the current environment, would be unhelpful in terms of achieving both the inflation target and full employment.”

New Zealand Dollar

Last week, the RBNZ held its Official Cash Rate at 1 percent, as had been widely expected by analysts. This followed August’s surprise 50-basis point rate cut. In its, monetary policy statement, central bank policymakers said they did “not warrant a significant change to the monetary policy outlook.

Weekly Forecast

The Reserve Bank of Australia is expected to cut its benchmark interest rate 25-basis points on October 1 from 1.00% to 0.75%, however, there are still some who don’t believe they will. This is based on overnight-index-swap rates which imply an October 1 cash rate of 0.80%. This is above the 0.75% rate expected after the rate cut.

Ahead of the decision, index provider ASX says the probability of a quarter-point rate cut is about 80%. This is up from 25% on September.

Another rate cut could drive the AUD/USD even lower since not everyone is convinced the RBA will make the move and have not fully priced in one.

In New Zealand, traders will get the opportunity to react to the ANZ Business Confidence report and the NZIER Business Confidence report.

If these reports show improvement then this will not support the case for a rate cut by the RBNZ in November. This could underpin the NZD/USD.

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