AUD/USD and NZD/USD Fundamental Weekly Forecast – RBNZ Expected to Unveil New Stimulus Tool

Last week’s U.S. presidential election fueled a volatile two-sided trade on November 3 as a surprisingly strong performance by President Trump forced weak Australian Dollar buyers to liquidate long positions, driving the Aussie into its lowest level since July 24.

However that weakness didn’t last very long as Democratic challenger Joe Biden started to make a comeback and by the end of the week, sat in a position to win the presidency. After the initial weakness, new buyers came in, betting on a Biden win and the hopes of additional stimulus measures by the U.S. government. This drove the AUD/USD into its highest level since September 15.

There were important releases by the Reserve Bank of Australia (RBA) and several economic reports but the primary focus for investors was on the election. The catalyst for the rally was increased demand for risky assets.

Last week, the AUD/USD settled at .7260, up 0.0232 or +3.30%. The NZD/USD closed at .6773, up 0.0160 or +2.42%.

Democrat Biden Wins White House; Republicans Retain Senate

Investors heralded Joe Biden’s election as U.S. president over the weekend by buying trade-exposed currencies like the Australian and New Zealand Dollars on expectations that a calmer White House could boost world commerce and that monetary policy will remain easy.

Biden crossed the threshold of the 270 Electoral College votes required for victory on Saturday by winning the battleground state of Pennsylvania. Republicans appear to have retained control of the Senate, though the final makeup may not be clear until runoff votes in Georgia in January.

The prospect of more gridlock also means that expectations for a massive U.S. fiscal stimulus package have been lowered. Removing massive coronavirus stimulus from the agenda sent bond yields sharply lower in anticipation of less borrowing and more quantitative easing from the U.S. Federal Reserve.

The plunge in long-term U.S. Treasury Bond yields made the dollar a less-attractive investment, driving up demand for higher risk currencies like the AUD/USD and NZD/USD.

Weekly Forecast

The focus will shift to the Reserve Bank of New Zealand (RBNZ) monetary policy decisions on Wednesday.

Although RBNZ policymakers are forecast to leave interest rates unchanged at 0.25%, they are also expected to unveil a new monetary policy tool this week to drive borrowing costs for lenders lower and boost economic growth, while again signaling an eventual shift to negative rates.

The RBNZ is seen holding the official cash rate at 0.25% at a monetary policy meeting on Wednesday and leaving its quantitative easing program untouched, all economists forecasted in a Reuters poll.

But markets will look for clues on a move to 0% or negative OCR, although stronger than expected data gives the RBNZ enough room to stick to its guidance of not lowering rates until March next year.