AUD/USD and NZD/USD Fundamental Weekly Forecast – RBA Minutes: Look for Concerns Over Housing

This week, the economic news shifts back to the Australian Dollar. The week will start with the Aussie supported by the resumption of trade talks between the United States and China, but this time in Washington. Both parties cited progress in last week’s trade talks which took place in Beijing.
James Hyerczyk

The Australian and New Zealand Dollars finished higher last week with the Aussie supported by optimism over U.S.-China trade relations and the Kiwi underpinned by the less-dovish monetary policy statement from the Reserve Bank of New Zealand. The upside momentum created by these events helped continue this year’s strong rally which has put the Aussie up 1.23% for the year, and the Kiwi up a stellar 2.19%.

For the week, the AUD/USD settled at .7139, up 0.0049 or +0.70% and the NZD/USD finished at .6865, up 0.0120 or 1.79%.

Australian Dollar

Australian economic data was mixed last week. The biggest concern was the steep drop in mortgages. The Home Loan report came in at -6.1%, well-below the -2.0% forecast.

According to the Australian Bureau of Statistics (ABS), loans to household fell by 4.4% to $32.835 billion after seasonal adjustments, leaving the decline over the year at 13.2%. The loss was driven by steep declines in housing finance.

This report confirms that the Australian housing market is weakening and may be a major problem for the Reserve Bank of Australia (RBA) later this year. Recently, the central bank shifted to a neutral tone, which may be the first step in cutting rates later in the year. This step may be necessary to save the Australian housing market.

The report showed that the broad-based decline in lending reflects a variety of factors, including tighter home loan lending standards, reduced investment from overseas buyers, possible changes to the tax treatment of housing in the upcoming federal election along with reduced demand for finance given widespread expectations that home prices will continue to fall for some time yet, extending the national downturn that began in late 2017.

New Zealand Dollar

Last week, the NZD/USD soared after short-sellers were caught on the wrong side of the Reserve Bank of New Zealand’s monetary policy decision. The central bank kept their benchmark interest rate unchanged at 1.75%, but backed off from offering fresh dovish signals for future monetary policy changes. Investors went into the report looking for the RBNZ to talk down the economy and hint at a future rate cut. This would have put it in line with other major central bank outlooks calling for a slowdown in their respective economies. This news triggered a huge short-covering rally.

Weekly Forecast

This week, the economic news shifts back to the Australian Dollar. The week will start with the Aussie supported by the resumption of trade talks between the United States and China, but this time in Washington. Both parties cited progress in last week’s trade talks which took place in Beijing.

The RBA will also release its Monetary Policy Meeting Minutes. We’re looking for the minutes to reflect a more dovish tone from the central bank. Traders want to know how policymakers went from a potential rate hike later this year, to a neutral state.

After the minutes, investors will get the opportunity to react to data on wage growth, employment change and the unemployment rate. RBA Governor Philp Lowe is also scheduled to speak.

The RBA is not too concerned over the labor market, however, it is worried about the housing market. If there is a rate cut later in the year, weakening housing will likely be cited as the reason.

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