AUD/USD and NZD/USD Fundamental Weekly Forecast – RBA to Hold Rates at 1.00%; Hint at Rate Cut in October

Early September 3, Australian traders will get the opportunity to react the monthly Retail Sales report. It is expected to come in at 0.2%. Later in the day, the Reserve Bank of Australia (RBA) is expected to leave its benchmark interest rate unchanged and probably indicate a rate cut in October.
James Hyerczyk
AUD/USD and NZD/USD

The Australian and New Zealand Dollars finished lower last week with the Aussie drifting mostly sideways to lower and the Kiwi hitting a multi-year low. Investors really had nothing to celebrate last week with most focused on future central bank rate cuts, even with the United States and China announcing the resumption of trade talks on Thursday, September 5.

Last week, the AUD/USD settled at .6737, down 0.0019 or -0.28% and the NZD/USD finished at .6310, down 0.0086 or -1.35%.

U.S. News

President Trump said Beijing was actively reaching out to Washington to resume trade negotiations and “make a deal” to end a spiraling trade war. “I think we’re going to have a deal, because now we’re dealing on proper terms. They understand and we understand,” Mr. Trump said. “Very big things are happening with China.’

Later in the week, the 2-year/10-year U.S. Treasury yield curve inverted, which some believe is signaling a future recession.

On August 29, China said it is willing to calmly resolve the trade dispute with the United States and is against any further escalation in tensions, Gao Feng, spokesman for China’s Ministry of Commerce, said Thursday.

“We firmly reject an escalation of the trade war, and are willing to negotiate and collaborate in order to solve this problem with a calm attitude,” Gao said, according to a CNBC translation of his Mandarin-language remarks. He noted that the Chinese and U.S. trade delegations have maintained “effective” communication.

Shortly after Gao’s comments were released, the United States and China announced that trade talks would begin on Thursday, September 5.

Australian News

In Australia, Private Capital Expenditure fell 0.5%, lower than the +0.4% forecast. Building Approvals tumbled 9.7%. Traders were looking for a flat reading.

In other news, Reserve Bank of Australia (RBA) deputy governor Guy Debelle said it’s possible interest rates could fall to almost zero and the bank may resort to unconventional stimulus measures in order to “achieve our objectives”.

When asked how low the cash rate could potentially fall, Dr. Debelle said international experience suggested it could ultimately drop to between zero and 0.5 percent.

Debelle also said “hopefully” the RBA doesn’t need to worry about moving rates to almost zero.

New Zealand News

In New Zealand, ANZ Business Confidence fell to -52.3 from -44.3.

Overall business confidence as measured by ANZ’s Business Outlook Survey has plunged to its lowest level since April 2008. The ANZ economist summed the report with the headline, “Business Confidence: Nothing Good to Say About it”.

ANZ’s chief economist Sharon Zollner said that most activity indicators fell again in August “to even weaker levels”. “Employment, investment and export intentions all fell to dismal levels, along with profit expectations.”

Weekly Forecast

Early September 3, Australian traders will get the opportunity to react the monthly Retail Sales report. It is expected to come in at 0.2%. Later in the day, the Reserve Bank of Australia (RBA) is expected to leave its benchmark interest rate unchanged and probably indicate a rate cut in October.

On September 4, the government will release its latest quarterly GDP report. It is expected to show the economy grew 0.5%, up from 0.4%.

Other catalysts this week are the resumption of trade talks on September 5 and Friday’s U.S. Non-Farm Payrolls report. Investors will likely be trading off of daily progress reports from the trade talks.

The U.S. Non-Farm Employment Change is expected to show the economy added 168K jobs in August, up from 164K. Average Hourly Earnings are expected to come in at 0.3%, matching last month’s increase. The Unemployment Rate is expected to hold steady at 3.7%.

Late in the afternoon on Friday, Fed Chair Jerome Powell is scheduled to speak.

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