AUD/USD and NZD/USD Fundamental Weekly Forecast – US Stimulus Talk Will Exert Most Influence on Aussie, Kiwi

The Australian and New Zealand Dollars finished higher last week with traders ignoring dovish outlooks from their respective central banks. Instead, the Aussie and Kiwi were supported by a weaker U.S. Dollar, which fell in reaction to increased demand for riskier assets. The catalysts behind the rebound rallies in the currencies was hope for a U.S. fiscal stimulus deal and rising expectations for the election of Democratic Joe Biden for U.S. president.

Last week, the AUD/USD settled at .7241, up 0.0077 or +1.08% and the NZD/USD closed at .6672, up 0.0035 or +0.52%.

Aussie, Kiwi Rise on Lower Demand for Safe-Haven US Dollar

The AUD/USD and NZD/USD rose last week as expectations grew that Joe Biden would win the U.S. presidency and offer fiscal stimulus after the elections.

This notion was driven by a report from Reuters that said several Wall Street banks forecast a stimulus package no matter which candidate wins, but say that a Biden presidency, if Democrats also retake control of the Senate, would be likely to result in a bigger one. UBS Asset Management, for example, is assigning a 75% probability of a Biden win.

“Besides possibly losing the presidency, Republicans may also lose control of the Senate as betting odds are giving Democrats a near 70% chance of taking the Senate,” Brown Brothers Harriman strategists said.

As far as a fiscal stimulus package is concerned, the news was two-sided last week with President Trump first calling off negotiations at the start of the week, then increasing his offer to $1.8 trillion, nearly double the original offer from the administration when talks began late summer. That proposals was soundly rejected as Democrats in the House and Republicans in the Senate expressed opposition Saturday to Trump’s new offer, further complicating a week of already confusing negotiations and dimming hopes for a deal before Election Day.

Australia’s Central Bank Keeps Policy

The Reserve Bank of Australia (RBA) last Tuesday announced its decision to maintain the current policy settings. In a statement announcing the central bank’s monetary policy decision, RBA Governor Philip Lowe said:  “The Board continues to consider how additional monetary easing could support jobs as the economy opens up further.”

Kiwi Mixed on Aggressive Monetary Easing Bets

The Kiwi posted a two-sided trade last week, first plunging following a dovish statement from the Reserve Bank of New Zealand (RBNZ) on Thursday that it was “actively working” on negative interest rates.

RBNZ officials “said that they’d rather be aggressive with the delivery of monetary stimulus and be seen to do too much too soon rather than too little too late,” Commonwealth Bank analysts wrote in a note.

Weekly Forecast

Confusing times ahead indeed with bearish interest rate moves likely to cap gains, while increased demand for riskier currencies and a weaker U.S. Dollar underpinning the Aussie and Kiwi.

The Reserve Bank of Australia (RBA) is widely expected to further lower its cash rate to 0.1% from a record low of 0.25% at its November policy meeting, but the chances of negative rates were “extraordinarily unlikely.”

The Reserve Bank of New Zealand (RBNZ), on the other hand, are expected to cut the official cash rate by 75 basis points to -0.5% in April 2021.

The variable this week will be the U.S. fiscal stimulus package since this story has been driving the price action in the U.S. Dollar and global equity markets.

As of Sunday, the Democrats and Republicans have reached an impasse to the news may not be bullish early in the week. This could weigh on demand for the Aussie and Kiwi. However, due to the volatile situation in Washington, both currencies could rebound if both parties find some common ground and move closer to a deal.

Looking at it in a timeline, the stimulus news will have the most immediate impact on the Aussie and Kiwi, followed by the RBA rate cut in early November then the RBNZ move to negative rates in April 2021.

For a look at all of today’s economic events, check out our economic calendar.