AUD/USD and NZD/USD Fundamental Weekly Forecast – RBNZ May Hint at Rate Hike Later This Year

The Australian and New Zealand Dollars finished lower last week as a bout of global risk aversion hit equities and lowered bond yields, while a further lockdown in Sydney challenged the domestic economic outlook.

Meanwhile the Reserve Bank of Australia (RBA) sounded a little hawkish, but that assessment didn’t help the currency, while the U.S. Federal Reserve failed to reveal any concrete changes in its latest minutes.

Last week, the AUD/USD settled at .7490, down 0.0036 or -0.48% and the NZD/USD finished at .6999, down 0.0032 or -0.45%.

Heightened volatility will be the theme this week with the U.S. scheduled to release reports on consumer and producer inflation, and retail sales. Federal Reserve Chairman Jerome Powell will also testify.

In Australia, investors will be focused on the Employment Change and Unemployment Rate reports. New Zealand will offer up its latest Reserve Bank (RBNZ) rate statement and quarterly consumer price inflation.

Fed Minutes Reflect Divided Policymakers

Minutes of the U.S. Federal Reserve’s June policy meeting released last Wednesday showed that while the economic recovery “was generally seen as not having yet been met,” Fed officials agreed they should be poised to act as if inflation or other risks materialized.

In minutes that reflected a divided Fed wrestling with new inflation risks but still relatively high unemployment, “various participants” at the June 15-16 meeting felt conditions for reducing the central bank’s asset purchases would be “met somewhat earlier than they had anticipated.”

Others saw a less clear signal from incoming data and cautioned that reopening the economy after a pandemic left an unusual level of uncertainty which required a “patient” approach to any policy change, stated the minutes, which were released last Wednesday.

RBA Tapers QE but Affirms Low Rates Outlook

Australia’s Reserve Bank (RBA) last Tuesday took its first step towards tempering its massive stimulus as employment proves far stronger than previously expected, although actual rate hikes remain a distant prospect.

The RBA held its cash rate at a record low 0.1% in a widely expected move and reiterated the need for the setting to remain unchanged until 2024 to help spark wage and inflation pressures.

It also retained the April 2024 bond for its three-year yield target of 0.1%, as expected, and announced a third round of its quantitative easing program albeit at a size smaller than the previous two rounds.

Weekly Forecast

New Zealand’s central bank will leave monetary policy unchanged this week but could start to raise rates later this year, according to a Reuters poll, following recent data that showed rising inflationary pressures and a tightening labor market.

All economists polled by Reuters expect the Reserve Bank of New Zealand (RBNZ) to hold the official cash rate (OCR) on Wednesday at a record low of 0.25%, where it has been since a pandemic-driven cut in March last year.

But at least a quarter of them now expect a rate hike later this year, a change in sentiment sparked a business survey last week that indicated a sharp improvement in outlook while also flagging rising capacity pressures and inflation.

In other news that could drive the price action this week, the prospect of an extended lockdown in Sydney loomed as Australian health officials reported yet another record daily rise in COVID-19 cases for the year, fueled by the highly infectious Delta variant.

State Premier Gladys Berejiklian said the progress of that figure in coming days would determine whether Sydney’s lockdown, due to end on Friday, would be extended.