AUD/USD and NZD/USD Fundamental Weekly Forecast – RBA, RBNZ Decisions Should Highlight Divergence with Fed Policy

The Australian Dollar was under pressure most of the week until Friday when it gained back most of its loss on short-covering in response to a mixed U.S. jobs report.

For the week, the AUD/USD settled at .7398, down 0.0004 or -0.06%.

Early in the week, the Aussie lost ground in response to solid U.S. economic data and the hawkish Federal Reserve’s assessment of the economy. The shedding of risky assets also lead to a wave of selling pressure as well as President Trump’s request for stiffer tariffs on China.

The Australian Trade Balance rose to 1.87 billion, better than the estimate of 0.91 billion. The previous month was revised lower to 0.73 billion.

Australian Retail Sales rose 0.4%, matching the previous month. However, it was slightly better than the 0.3% forecast.

New Zealand Dollar

The New Zealand Dollar finished the week lower with investors reacting to the escalation of the trade dispute between the United States and China, the divergence between the hawkish U.S. Federal Reserve and the dovish Reserve Bank of Australia and mixed domestic employment data.

Last week, the NZD/USD settled at .6748, down 0.0048 or -0.71%.

Early in the week, ANZ Business Confidence came in at -44.9, worse than the previous reading of -39.0. The quarterly Employment Change rose 0.5%, lower than last month’s 0.6% gain, but slightly better than the 0.4% forecast. The Unemployment Rate was 4.5%, higher than the estimate and previous read.

In the U.S. last week, a hawkish Federal Reserve helped support the greenback after the central bank gave an upbeat assessment of the world’s biggest economy and stayed on course to gradually lift interest rates.

The Fed kept interest rates unchanged as widely expected, and said U.S. economic growth has been rising strongly and the job market has continued to strengthen.

Forecast

Aussie and Kiwi traders should keep an eye on the escalating trade tensions between the US and China this week. This could drive the price action since Australia and New Zealand are major trading partners with the world’s second-largest economy.

The U.S. Dollar surged last Thursday on safe-haven buying after President Donald Trump said he is considering the U.S. raise proposed tariffs on $200 billion of Chinese goods to 25 percent from the 10 percent rate his administration suggested on July 10. China then warned of retaliation if the U.S. followed through with its plan.

Additionally, the greenback slipped against the Yuan after the Chinese central bank acted to stabilize the currency by stemming speculation against it. This helped support the AUD/USD and NZDUSD on Friday.

As far as economic data is concerned this week, the slate is full.

In Australia, traders will get the opportunity to react to the latest Reserve Bank of Australia Rate Statement and Monetary Policy State. Additionally, RBA Governor Philip Lowe is expected to speak. Don’t expect any major announcements from the central bank. Australian financial futures traders are pricing in the next rate hike for late 2019 or early 2020.

In New Zealand, look for the release of quarterly Inflation Expectations and the Reserve Bank of New Zealand Monetary Policy Statement, Rate Statement and interest rate decision. There will also be a central bank press conference.

The benchmark interest rate is expected to remain unchanged at 1.75%. Additionally, the RBNZ is expected to say rates won’t rise for a considerable period of time.

The AUD/USD and NZD/USD could weaken after their central bank announcements because they are likely to highlight the bearish divergence with the hawkish U.S. Federal Reserve.

Economic data from the U.S. will be scarce until Thursday when the U.S. Producer Price Index is released at 1230 GMT. It is expected to show a 0.2% gain versus the previously reported 0.3%.

On Friday, the Consumer Price Index is expected to show growth of 0.2%, up from 0.1%. The Core CPI is also expected to come in at 0.2%, matching the previous reading.