AUD/USD and NZD/USD Fundamental Weekly Forecast – RBA, RBNZ Rate Cuts Are 50/50 Proposition

Given the event between the US and China early Monday, and Tuesday’s Reserve Bank of Australia (RBA) interest rate decision and monetary policy statement, Australian Dollar traders should expect nothing but heightened volatility this week. To a lesser extent, New Zealand Dollar traders should also look for volatility in the wake of the Reserve Bank of New Zealand’s (RBNZ) interest rate and monetary policy statement. According to financial market calculations, the chances of an RBA rate cut are 50/50. For the RBNZ, analysts are also split.

At 03:27 GMT, the AUD/USD is trading .6974, down 0.0050 or -0.69% and the NZD/USD is at .6611, down 0.0034 or -0.50%.

U.S. – China Trade Dispute at the Forefront

Helping to drive the AUD/USD lower early Monday is the news that a delegation from China may cancel its plans to continue trade talks with the United States later this week. The move was prompted by a pair of tweets from President Trump calling for increased tariffs on imports from the world’s second largest economy. The Aussie is feeling some pain because Australia is often viewed as a proxy to China’s economy.

The reaction in the financial markets was swift and decisive after President Trump said in a tweet Sunday afternoon that the current 10% levies on $200 billion worth of Chinese goods will rise to 25% on Friday. He also threatened to impose 25% tariffs on an additional $325 billion of Chinese goods “shortly.”

Furthermore, although trade negotiations between Washington and Beijing officials are set to resume on Wednesday, the president lamented that the progress is moving “too slowly” as China tries to re-negotiate terms of the deal.

Wall Street Journal, CNBC Sources Say China May Cancel Trade Talks

According the Wall Street Journal, China is responding to Trump’s latest tweets by threatening to cancel its trade talks with the U.S. this week. Citing a source, the Journal said Beijing had been surprised by the new threats.

CNBC followed up by saying that two sources briefed on talks confirmed that news to CNBC. The Chinese may back out of negotiations this week after Trump’s escalated tariff threat, they said, abandoning a six-month truce after Beijing waffled on some previously discussed commitments.

Once CNBC source said Chinese Vice Premier Liu He will likely cancel the trip he’d planned for himself and a 100-person delegation for a final round of talks. A second source said Trump’s decision to more than double the tariff rate on $200 billion of goods was meant to send a message to Liu not to come to the U.S. with more “empty offers.”

Chances of RBA Rate Cut are 50/50

For weeks, Aussie traders have been saying that the odds of a cut at the RBA’s May meeting have been about 70 percent. Conditions have drifted a little over the past few days and now “no change” is back as the favorite.

Markets Are Split on RBNZ Rate Cut

According to economists with Westpac Bank, the decision to cut interest rates is “on a knife edge” and ASB Bank is calling it “finely balanced.” Market pricing points to a 50 percent chance of a 25-basis point cut to 1.5 percent. The median in a Bloomberg poll of 17 economists is for a 25 basis-point rate cut to 1.5 percent.

As recently as March, RBNZ Governor Adrian Orr surprised investors when he said, “given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next official cash rate move is down.”