AUD/USD and NZD/USD Fundamental Weekly Forecast – RBA Minutes, Fed Decisions Put Aussie in Spotlight

As far as the RBA is concerned. The minutes may clarify how many policymakers are in favor of a rate cut and how many are in favor of a rate hike. The market has already spoken, pricing in a rate cut for August.   
James Hyerczyk

The Australian and New Zealand Dollars finished higher last week on relatively low volatility. In the absence of major economic releases and central bank activity, traders had to rely on outside influences such as Brexit, U.S.-China trade relations and Chinese stimulus measures. Mixed U.S. economic data as well as position squaring ahead of this week’s U.S. Federal Reserve meeting also helped underpin prices.

Last week, the AUD/USD settled at .7087, up 0.0041 or +0.58% and the NZD/USD finished at .6846, up 0.0043 or +0.63%.

In Australia, Home Loans fell 2.6%, more than expected. This was another negative reflection on the Australian housing market. Another negative that investors seemed to ignore was the weaker-than-expected Westpac Consumer Sentiment report. It came in at -4.8%, worse than the predicted 4.3%.

In New Zealand, Business NZ Manufacturing Index was slightly better at 53.7. Visitor Arrivals were down -0.1%, but the previous month was revised lower to 2.7%.

China posted disappointing numbers once again. Fixed Asset Investment came in at 6.1%, meeting expectations. Industrial Production came in at 5.3%, lower than the 5.5% forecast. Retail Sales were slightly better than the estimate, matching the previous month. The Unemployment Rate jumped to 5.3%, up from 4.9%.

The big three U.S. reports:  Retail Sales, Consumer Price Index and Producer Price Index offered mixed results, but the big takeaway for investors was that they were not strong enough to change Fed policy, meaning the central bank was likely to remain “patient” before raising rates.

U.S. retail sales unexpectedly rose in January, lifted by an increase in purchases of building materials and discretionary spending, but receipts in December were much weaker than initially thought. The relatively strong retail sales report will probably not change expectations for a sharp slowdown in economic growth in the first quarter.

U.S. consumer prices rose for the first time in four months in February, but the pace of the increase was modest, resulting in the smallest annual gain in nearly 2-1/2 years. Slowing domestic and global growth ae keeping inflation in check even as a tight labor market is driving up wages.

U.S. producer prices barely rose in February, resulting in the smallest annual increase in more than 1-1/2 years, yet another indication of benign inflation.

Weekly Forecast

This week’s key event for AUD/USD and NZD/USD traders will be the U.S. Federal Reserve interest rate and monetary policy decisions. Aussie traders will also be largely influenced by the Reserve Bank of Australia Monetary Policy Meeting Minutes.

Fed policymakers will offer new economic projections while Chairman Powell will hold a press conference. Fed officials are scheduled to meet Tuesday and Wednesday to assess the economy and deliberate on the future course of monetary policy. Given the recent slew of weak economic data, look for the Fed to leave its benchmark interest rate unchanged. Also look for policymakers to maintain their “patient” approach. Since these conclusions are widely expected, they should have little influence on Treasury yields and thus the Aussie and Kiwi.

However, the Federal Open Market Committee Economic Projections are likely to move the AUD/USD and NZD/USD. A dovish tone from policymakers will be bearish for the U.S. Dollar. If they suggest the central bank will refrain from lifting rates in 2019 then the Aussie and Kiwi could pop to the upside.

As far as the RBA is concerned. The minutes may clarify how many policymakers are in favor of a rate cut and how many are in favor of a rate hike. The market has already spoken, pricing in a rate cut for August.

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