AUD/USD and NZD/USD Fundamental Weekly Forecast – Trade Deal Primary Price Driver; Fed Expected to Hold Policy Steady

Aussie and Kiwi traders will get the opportunity to react to U.S. data on consumer inflation and retail sales, however, these reports are not likely to change the Fed’s view on the economy.
James Hyerczyk

The Australian and New Zealand Dollar finished higher last week with the gains fueled by a number of factors including a weaker U.S. Dollar, optimism over a U.S.-China trade deal, upbeat China economic data, higher commodity prices and central bank comments.

The Aussie and Kiwi were supported early in the week by a surprise improvement in Chinese manufacturing activity. Chinese factory activity expanded at the quickest pace in almost three years in November. The commodity-linked Australian and New Zealand Dollars were underpinned by sharply higher crude oil prices.

Last week, the AUD/USD settled at .6841, up 0.0082 or +1.21%, and the NZD/USD settled at .6567, up 0.0145 or +2.26%.

Australian Dollar

The upbeat China PMI data gave the Australian Dollar a boost last Monday and prices consolidated in the high end of its weekly range the rest of week.

As expected, the Reserve Bank of Australia (RBA) decided to leave it benchmark interest rate unchanged at 0.75% on Tuesday. Additionally, RBA policymakers reiterated that it “continues to monitor developments, including the labor market”, and secondly, “the Board is prepared to ease monetary policy further if needed”.

The RBA also said, “economy appears to have reached a gentle turning point”, “the main domestic uncertainty continues to be the outlook for consumption”, and “the unemployment rate…is expected to remain around this level [5-1/4 percent] for some time.”

New Zealand Dollar

The New Zealand Dollar hit a four-month high last week. Early in the week, the risky currency was driven higher by the surprise Chinese PMI data and by talk of fiscal stimulus to boost the New Zealand economy.

Later in the week, the Kiwi climbed after softer-than-expected banking reforms led to a reduction in rate-cut expectations.

The Reserve Bank of New Zealand (RBNZ) lifted bank capital requirements, but not as much as some investors had feared. The long implementation time has also reduced expectations that monetary easing might be needed to offset the hike’s tightening effects.

Weekly Forecast

There aren’t any major reports from Australia and New Zealand this week, but China will be active.

Look for reactions by Aussie and Kiwi traders to Chinese reports on Trade Balance, Consumer and Producer Inflation and New Loans.

Minor reports out of Australia include Quarterly HPI, NAB Business Confidence and Westpac Consumer Sentiment. RBA Governor Lowe will speak and the central bank will release its latest bulletin.

The key report from New Zealand will be the Business NZ Manufacturing Index on Thursday.

This week, the Fed meets again to announce its rate policy after cutting the Federal Funds rates three time in 2019 to between 1.50 – 1.75%. Look for the Fed to hold rates steady.

Aussie and Kiwi traders will get the opportunity to react to U.S. data on consumer inflation and retail sales, however, these reports are not likely to change the Fed’s view on the economy.

Traders will be looking for clues as to what policymakers have to see before cutting or raising rates in 2020.

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