AUD/USD and NZD/USD Fundamental Weekly Forecast – Trade Deal Concerns Could Weigh on Aussie, Kiwi

The Australian and New Zealand Dollars finished higher last week, but the price behavior was deceiving. The biggest positive response by Aussie and Kiwi traders was to the U.S. Federal Reserve’s interest rate and policy decisions on Wednesday. Prices rose initially on Friday in response to the trade deal headline, but retreated throughout the session as investors expressed caution over the details.

Last week, the AUD/USD settled at .6876, up 0.0035 or +0.51% and the NZD/USD finished at .6591, up 0.0024 or +0.36%.

Fed Leaves Rates Unchanged, Indicates No Changes Through 2020

Earlier in the week on Wednesday, the Federal Reserve held interest rates steady following its two-day meeting this week and indicated that no action is likely next year amid persistently low inflation.

Concluding a year that saw the central bank take down its benchmark rate three times, the Federal Open Market Committee on Wednesday (December 11) met widely held expectations and kept the funds rate in a target range of 1.50%-1.75%.

In its statement explaining the decision, the committee indicated that monetary policy is likely to stay where it is for an unspecified time, though officials will continue to monitor conditions as they develop. The decision to keep rates unchanged was unanimous, following several dissents in recent meetings.

“The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective,” the statement said.

“The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate,” the committee added.

Through the “dot plot” of individual members’ future projections, the FOMC indicated little chance of a cut or increase in 2020.

The Trade Deal

U.S. President Donald Trump and Chinese officials said Friday that they have agreed to a “phase one” trade deal that included cutting American tariffs on Chinese goods.

Weekly Forecast

The week will start with the Aussie and Kiwi under a cloud of uncertainty due to the lack of clarity over the U.S.-China trade deal. If Friday’s price behavior is any indication, the currencies could open lower and stay lower most of the week unless the trade deal worries are lifted.

American critics noted several short-comings in the trade deal that was announced between the world’s two largest economies on Friday.

Top among them were a lack of specifics on farm purchase commitments and enforcement mechanisms, a shortage of trust on both sides and U.S. President Donald Trump’s mercurial negotiating style.

“We don’t have anything in writing, and even if we have something in writing, it doesn’t matter with this administration,” said Nicole Bivens Collinson, president of international trade and government relations with law firm Sandler, Travis & Rosenberg.

“China knows, whatever deal it’s getting into could change anytime,” said the former assistant chief negotiator for the Office of the U.S. Trade Representative.

Some critics also said the numbers presented by the White House did not pass the smell test, particularly when weighed against the wider costs of the trade war, which has lasted 17 months and seen tariffs imposed on nearly a half trillion dollars in two-way trade.

On Tuesday, investors will get the opportunity to react to the latest data from New Zealand on ANZ Business Confidence. The Reserve Bank of Australia (RBA) will also release its Monetary Policy Meeting Minutes.

On Thursday, New Zealand will release data on quarterly GDP. Australia will release its Employment Change and Unemployment Rate reports. We could see heightened volatility on Thursday.