AUD/USD and NZD/USD Fundamental Weekly Forecast – Trade Disputes, RBA Decisions, Domestic Data Main Price Drivers

The Australian and New Zealand Dollars posted a two-sided trade last week, rallying early after the announcement of a new trade deal between the United States and Mexico drove investors out of the safe-haven U.S. Dollar, then plunging late in the week on concerns over a possible escalation of the trade dispute between the U.S. and China.

Last week, the AUD/USD settled at .7193, down 0.0134 or -1.83% and the NZD/USD closed at .6620, down 0.0070 or -1.05%.

There was economic data last week from Australia, New Zealand and the United States, but the primary focus for investors was on trade issues. As far as the economic data is concerned, there were no significant major events to change the central bank or interest rate outlook. The Fed is still hawkish and likely to raise rates at least 2 more times in 2018, and the Reserve Banks of Australia and New Zealand are still dovish.

The widening interest rate differential is what’s driving the long-term downtrends in the AUD/USD and NZD/USD. The trade news is driving the volatility.

Short-term, the Forex pairs are being primarily influenced by fresh trade news.

On factor that drove the action late in the week was the news that the United States and Canada ended their trade talks without a deal. Although there was some upside retracement after the U.S. said talks would resume with Canada next week, traders feel that given the downside momentum throughout the session, the currencies should continue to trade weaker on Monday.

The main driver of the selling pressure, however, late in the week was the possibility that new tariffs by the United States against China would be announced as early as this week.

Traders also reacted to weakness in the Euro which was fueled by Trump’s comments saying that the European Union’s proposal to eliminate auto tariffs was “not good enough”. Investors were fearful about Europe’s outlook as Trump has threatened to impose tariffs on cars assembled by German auto makers.

Forecast

This week, the emphasis will once again be on the U.S. Dollar and its function as a safe-haven asset. The Aussie and Kiwi could face extended selling pressure if the greenback is supported by trade dispute jitters or robust U.S. economic data. Additional trade volatility could be provided by the Reserve Bank of Australia’s interest rate and monetary policy decision as well as fresh data on Australian GDP and Trade Balance.

According to Bloomberg, President Trump is prepared to ramp up the trade dispute with China and has told aides he is ready to impose tariffs on $200 billion more in Chinese imports as soon as a public comment period on the plan ends next week.

Traders will also get the opportunity to react to a slew of U.S. economic reports that could determine the pace of future U.S. Federal Reserve interest rate hikes and Australia economic news.

Early Monday, Australia will release data on Retail Sales. They are forecast to increase 0.3%.

On Tuesday, the Reserve Bank of Australia is expected to leave interest rates unchanged and could clarify its position on future rate hikes which have been pushed into early 2020. Australia will also release data on quarterly GDP, which is expected to show a gain of 0.8%, down from the previously reported 1.0%.

The U.S. will report on ISM Manufacturing PMI. It is expected to come in at 57.6, slightly below the previously reported 58.1.

Wednesday will feature Australian Trade Balance. It is expected to come in at 1.46 Billion, down from 1.87 Billion.

Thursday will feature the ADP Non-Farm Employment Change report. It is expected to show the private sector added 188K jobs in August. This is down slightly from the 219K increase in July. ISM Non-Manufacturing PMI is forecast at 57.0, up from 55.7.

Friday will feature the most important U.S. Non-Farm Payrolls report. The headline number is forecast to show the economy added 191K jobs in August, up from 157K. The Unemployment Rate is expected to have held steady at 3.9%. Average Hourly Earnings, a key indicator of inflation, is expected to show a 0.3% increase, matching last month’s increase.