AUD/USD and NZD/USD Fundamental Weekly Forecast – RBNZ Expected to Leave OCR Unchanged

The Australian and New Zealand Dollar finished lower last week and in a position to weaken further this week as investors continued to weigh the impact of the coronavirus on economic growth in the Asia Pacific region especially China, Australia’s biggest trading partner.

Despite a surprisingly upbeat outlook for the economy by the Reserve Bank of Australia (RBA), the Australian Dollar fell to its lowest level since the financial crisis in 2009 as investors see the coronavirus outbreak and the catastrophic bushfires as threats to their economy.

Meanwhile, the New Zealand Dollar posted an even bigger loss than its Australian counterpart as traders began to lower growth forecasts as well as square positions ahead of this week’s Reserve Bank of New Zealand (RBNZ) interest rate and monetary policy decisions.

Last week, the AUD/USD settled at .6677, down 0.0010 or -0.15% and the NZD/USD closed at .6402, down 0.0062 or -0.96%.

Australian Dollar

Last week, the RBA held the official cash rate at 0.75 percent and talked up the strength of the economy, even as some analysts labeled the bank’s attitude “brave” and ignorant of the short-term risks facing the country.

At its first meeting of the year on February 4, RBA policymakers indicated that they were putting faith in last year’s three interest rate cuts to get households spending and lift the economy, resisting pressure to loosen monetary policy to head off the potential negative impact from the summer’s bushfires and coronavirus outbreak.

Going into the meeting, financial futures traders had been expecting interest rates to remain steady, but the price action the rest of the week indicates the RBA will have to trim rates again by May.

In a speech on Friday, RBA Governor Philip Lowe said the central bank considers the risk of further cutting rates far outweighs the benefits, a sign monetary policy is on hold barring steep rise in unemployment. Mr. Lowe also told MPs that there was an extremely low chance the central bank would cut interest rates below zero.

In economic news, Australian Retail Sales fell 0.5%, far below the -0.2% forecast and the Trade Balance also fell to 5.22 billion.

New Zealand Dollar

Last week, the New Zealand government reported the Employment Change for the fourth quarter in 2019 was unchanged. Traders were looking for a 0.3% increase. However, the Unemployment Rate fell to 4.0% and the Labor Cost Index rose 0.6%. Both positive events. Inflation Expectations also rose from 1.80% to 1.93%.

Weekly Forecast

This week, the Reserve Bank of New Zealand (RBNZ) is widely expected to leave its Official Cash Rate unchanged at 1.00%, however, expect policymakers to address the impact of the coronavirus on economic growth.

In economic news, look for a reaction to Friday’s Business NZ manufacturing Index.

In Australia, RBA Governor is expected to speech on Wednesday. Reports that could influence prices are NAB Business Confidence, Westpac Consumer Sentiment and MI Inflation Expectations.

In the U.S., Federal Reserve Chairman Jerome Powell’s testimony before Congress could set the tone on Tuesday and Wednesday. Traders will be watching Thursday’s CPI report and Friday’s Retail Sales report for direction.