AUD/USD and NZD/USD Fundamental Weekly Forecast – Will RBA Strengthen Case for Rate Cut?

The Australian and New Zealand Dollars finished sharply lower last week. The selling pressure was driven by a sharp rise in U.S. Treasury yields and weaker-than-expected domestic data. Comments were mixed over U.S.-China trade relations. Fed Chairman Jerome Powell reiterated the central bank’s call for patience, while offering little insight into future monetary policy decisions. Traders did react to weaker-than-expected New Zealand Trade Balance data and a stronger-than-expected Gross Domestic Product report.

Last week, the AUD/USD settled at .7080, down 0.0048 or -0.68% and the NZD/USD finished at .6799, down 0.0051 or -0.74%.

Geopolitical events were watched last week, but had little effect on prices. Early in the week, President Trump announced he would delay the March 1 trade deadline for additional tariffs on Chinese goods as trade negotiations are progressing. Investors didn’t react much to the news as a delay was already assumed and priced in. Investors are waiting for more specific details from the trade agreement.

On the economic front, U.S. Fourth-Quarter Gross Domestic Product (GDP) came in stronger than expected at 2.6%, and 2.9% for full-year 2018. Traders were looking for a 2.2% increase during the fourth quarter.

In other news, the Institute for Supply Management released data showing U.S. Manufacturing activity expanded at its slowest pace since November 2016. ISM Manufacturing PMI was 54.2, missing the 55.6 forecast and coming in below the 56.6 previous reading. The University of Michigan consumer sentiment index came in below expectations for February at 93.8 versus a 95.8 forecast. The Core PCE Price Index was flat at 0.2%, but Personal Spending and Personal Income fell.

Fed Chairman Jerome Powell gave his semiannual Congressional testimony, while offering nothing of substance for investors. He reiterated the same message from the Fed minutes. He acknowledged solid economic fundamentals while pointing out persistent market risks, including tight financial conditions tied to the late-2018 sell-off and the global economic slowdown.

In other news, Statistics New Zealand said the merchandise trade deficit increased to NZ$914 million in January. This was the largest deficit on record for a January month. The number was shy of expectations for a shortfall of NZ$300 million following the NZ$264 million surplus in December.

Weekly Forecast

This week’s reports on concentrated in Australia and the United States. The week starts with the Australian Buildings Approvals report. It is expected to come in up 1.5%. The previous report was minus 8.1%.

On Tuesday, the Reserve Bank of Australia (RBA) will release its latest Rate Statement. This could be a market moving event if the central bank continues to move towards a rate cut. On Wednesday, RBA Governor Philip Lowe is scheduled to speak. Traders will looking for comments on the direction of interest rates. His speech will be followed by the release of the latest GDP report. It is expected to show the economy grew by 0.5%. On Thursday, investors will get the chance to react to the Retail Sales report. It is expected to show a 0.3% gain, up from the previously reported -0.4%.

On Friday, all eyes will be on the U.S. Non-Farm Payrolls report. Powell said the labor market is strong. This report is expected to show the economy added 185K jobs in February. The Unemployment Rate is expected to dip to 3.9% and Average Hourly Earnings are estimated to have risen by 0.3%, up from 0.1%.