AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Downgrades Growth Outlook; RBNZ May be Too Optimistic

The Australian and New Zealand Dollars finished lower in light trading on Friday due to the U.S. bank holiday. Traders primarily reacted to the Reserve Bank of Australia Monetary Policy Statement and a U.S. Preliminary University of Michigan Consumer Sentiment report.

Traders didn’t seem to be too concerned over lingering issues regarding the delay in the U.S. tax reform plan, but this doesn’t mean they aren’t watching. They are probably waiting for further information.

The AUD/USD finished at .7656, down 0.0024 or -0.31% and the NZD/USD settled at .6926, down 0.0019 or -0.27%.

Early Friday, the RBA slightly downgraded its outlook for economic growth in Australia while signaling only a gradual rise in headline inflation.

In its quarterly statement on monetary policy, the central bank said it sees growth in December 2017 of 2.5 percent easing back from 2 to 3 percent in the previous forecast issued in August.

Additionally, in December 2018, the RBA sees economic growth of 3.25 percent, down from a previously forecast peak of 3.75 percent.

The RBA also forecast the economy growing at “a solid pace” over the next few years due positive labor market developments. However, the RBA is more concerned about inflation and wages growth with the central bank warning that both will rise “only gradually over time”.

Due to the weaker outlook for rising inflation, the Reserve Bank will leave its cash rate on hold at the historic low of 1.5 percent indefinitely.

In the U.S., there were no government reports, but the Preliminary University of Michigan Consumer Sentiment report did come in well under expectations at 97.8. Traders were looking for a reading of 100.8. Preliminary University of Michigan Inflation Expectations rose to 2.6%, up from 2.4%.

The consumer sentiment data reflected uncertainty over the current tax cut proposals. In addition, Americans are also preparing for another rate hike in December, which could be the first of a series of rate hikes over the next 12 months.

Finally, the news was light from New Zealand also. It reported that credit card sales rose during the month of October by 0.3%, following an upwardly revised 0.3% rise in September. However, these gains came after declines in six of the seven preceding months, buoyed by gains in fuel prices. However, spending on durables fell to 0.5% in October, and is down by about 2% over the last three months. In contrast, spending on consumables slightly rose to 0.1%, and spending on clothing was up 0.3%.

Based on these numbers, traders conclude that the Reserve Bank of New Zealand (RBNZ) is too optimistic over the country’s near-term economic growth.