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AUD/USD and NZD/USD Fundamental Weekly Forecast – RBA to Cut Benchmark Rate, but How Many More to Follow?

By:
James Hyerczyk
Published: Jun 2, 2019, 20:33 UTC

The RBA is expected to cut its benchmark rate by 25 basis points to 1.25%. Traders aren’t too worried about this rate cut because it has been telegraphed for weeks. The key question is how many more rate cuts will follow.

AUD/USD and NZD/USD

The Australian and New Zealand Dollars finished mixed last week as each currency responded differently to the heightened volatility in the financial markets and the prospect of a U.S. Federal Reserve interest rate cut.

Volatility was relatively subdued last week for both the Aussie and the Kiwi. The Aussie drifted mostly sideways-to-lower until Friday’s rally put it higher for the week. The Kiwi also posted a sideways-to-lower trade for most of the week. It did mount a strong rally on Friday, but that wasn’t enough to turn it higher for the week.

Last week, the AUD/USD settled at .6938, up 0.0010 or +0.15% and the NZD/USD finished at .6537, down 0.0014 or -0.21%.

In Australia, Building Approvals came in at -4.7%, below the 0.1% forecast. However, the previous month was revised higher to -13.4%. Private Capital Expenditures fell unexpectedly by 1.7%. The previous month was revised lower by to 1.3%.

In New Zealand, the ANZ Business Confidence report came in at -32.0, down from -37.5. This was read as bearish by traders. Building Consents also fell by 7.9% and the previous month was revised lower to -7.4%.

The RBNZ released its Financial Stability Report and the government released its Annual Budget. RBNZ Governor Orr gave two speeches, but the primary influence on the NZD/USD was the drop in business confidence.

Weekly Forecast

This week, the focus shifts to China and Australian data. Early Monday, China will release the Caixin Manufacturing PMI report. It is expected to come in at 50.0. A number below 50.0 will signal a weakening economy. This could drag the Aussie Dollar lower.

Early Tuesday, Australia will release its Retail Sales report. It is expected to come in at 0.2%. However, traders are not likely to show too much of a reaction to this report because on Wednesday, the Reserve Bank of Australia (RBA) will release it interest rate decision and monetary policy statement.

The RBA is expected to cut its benchmark rate by 25 basis points to 1.25%. Traders aren’t too worried about this rate cut because it has been telegraphed for weeks. The key question is how many more rate cuts will follow.

ANZ economists said, “We and the market will be shocked if the RBA doesn’t cut in June.

RBA governor Philip Lowe will issue a statement accompanying the rate decision, but clues about further rate moves may come from his speech to a RBA board dinner with the business community in Sydney Tuesday night.

Economists expect there will be a second 25 basis points decrease in the cash rate to 1.0 percent in coming months, likely in August.

Traders aren’t sure how long the rate cuts will go on. Westpac says a third cut may come in November, while JP Morgan predicts four reductions to take the cash rate to 0.5 percent by mid-2020.

Early Wednesday, Australia will release quarterly GDP figures. Look for a 0.4% reading, up from 0.2%.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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