AUD/USD and NZD/USD Fundamental Weekly Forecast – Was 2%+ Drop a Fat-Fingered Error or Sign of Things to Come?

The Australian and New Zealand Dollars are plummeting on Monday as investors took a risk-off approach and dumped commodity related currencies in reaction to the start of an oil price war. The Aussie and Kiwi were hit hard shortly after the opening after crude oil prices plunged in reaction to a pair of bearish moves by Saudi Arabia in effort to remind Russia who actually sets the global price of oil.

The Saudis responded with a vengeance to Russia’s decision on Friday to balk at OPEC and its allies’ proposal to slash production numbers in an effort to stabilize prices in response to lower demand due to the impact of the coronavirus.

The AUD/USD is trading .6549, down 0.0096 or -1.44% and the NZD/USD is at .6273, down 0.0083 or -1.31%.

Saudi Arabia Retaliates Against Russia

Saudi Arabia said it plans to boost crude output above 10 million barrels per day (bpd) in April after the current deal to curb production between OPEC and Russia – known as OPEC+ – expires at the end of March, two sources told Reuters on Sunday. The kingdom currently pumps 9.7 million barrels per day, but has the capacity to ramp up to 12.5 million barrels per day.

The Saudi’s also cut its OSP for April for all crude grades to all destinations by anywhere from $6 to $8 a barrel, sending oil into a tailspin.

Fat-Fingered Trader Behind the Aussie, Kiwi Crash

Early in the session, the Aussie and Kiwi declined more than 2% to reach lows at .6307 and .6015 respectively. Since that early plunge, both currencies have bounced back considerably, suggesting that perhaps the initial massive break was fueled by an overanxious trader.

Weekly Forecast

Was it a fat-fingered trader that hit the sell button or a harbinger of things to follow that drove the Aussie and Kiwi sharply lower?

We get that the markets are broken right now and filled with heightened volatility. We’ve also seen the charts and we know the trend so the early sell-off, while excessive, looked real to me. The timing may be off, but it seems reasonable that if both the Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) keep cutting rates or are forced to implement quantitative easing (QE) then the lows we saw today – .6307 for the Aussie and .6015 for the Kiwi – seem like reasonable targets at some time in the future.

The problem may be is that the plunge caught the major players by surprise as well as the moves by Saudi Arabia. The big players control the price action and they weren’t “short-enough” to take advantage of the steep break. So following a normal retracement and given the instability in the markets, I suspect they’ll be shorting any rebound rally.