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James Hyerczyk

The Australian and New Zealand Dollars posted solid gains last week even with a slight setback late in the week.

The Aussie and Kiwi rose early last week as traders turned more positive and less averse to risk amid an easing in coronavirus restrictions in several countries. Last Sunday, the Australian states of Queensland and Western Australia said they would slightly ease social distancing rules this week as the number of people infected decreased on the continent, pushing the Australian Dollar to a seven-week high against the U.S. Dollar.

Last week, the AUD/USD settled at .6421, up 0.0024 or +0.38% and the NZD/USD finished at .6061, up 0.0042 or +0.70%.

Dovish comments from the U.S. Federal Reserve also helped weaken the U.S. Dollar. “The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals,” the central bank said in a statement at the end of a two-day policy meeting on Wednesday.

The Fed’s statement came after data on Wednesday showed that the U.S. economy contracted in the first quarter. The Commerce Department said gross domestic product fell at a 4.8% annualized rate in the January-to-March period after expanding at a 2.1% rate in the final three months of 2019.

Demand for the higher-yielding Australian and New Zealand Dollars was also boosted on improving risk sentiment after Gilead Sciences said its experimental antiviral drug remdesivir helped improve symptoms in COVID-19 patients who were given the drop early.

In economic news, Australian Consumer Inflation rose 0.3% last quarter and Trimmed Mean CPI grew 0.5%. ANZ Business Confidence improved to -66.6 from -73.1.

In China, Manufacturing PMI was 50.8 slightly below the 51.0 forecast. Non-Manufacturing PMI was 53.2, higher than the 52.7 estimate.

Weekly Forecast

Late last week, the AUD/USD and NZD/USD dropped as risk sentiment soured after U.S. President Donald Trump threatened to impose new tariffs on China over the coronavirus crisis. This move is likely to continue to pressure the two Forex pairs unless Trump backs down from his threat.

Trump also said last Thursday his hard-fought trade deal with China was now of secondary importance to the coronavirus pandemic and he threatened new tariffs on Beijing, as his administration crafted retaliatory measures over the outbreak.

Meanwhile, the Chinese Yuan also weakened in the offshore market. A higher Yuan tends to weigh down the Australian Dollar because Australia is its biggest trading pattern.

A high risk of geopolitical tensions this week should keep a lid on the Aussie and Kiwi.

Traders will also get the opportunity to react to the Reserve Bank of Australia (RBA) rate statement and monetary policy statement as well as Australian retail sales and trade balance.

New Zealand is scheduled to release data on employment change and the unemployment rate. Inflation expectations are also on tap.

China has tentatively scheduled the release of reports on Caixin Services PMI and Trade Balance.

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