AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Holds Rates at 1.50 Percent; Investors Prepping for GDP

Both the Australian and New Zealand Dollars are trading higher early Tuesday after the Reserve Bank of Australia kept the official cash rate at its historic low of 1.5 percent for the 13^th consecutive month. The last time the RBA moved rates was a 25-basis point cut in August 2016.

At 0834 GMT, the AUD/USD is trading .7966, up 0.0023 or +0.29% and the NZD/USD is at .7180, up 0.0020 or +0.28%.

The decision to leave interest rates unchanged was widely expected with investors pricing in a zero-percent of a change.

The RBA had a hard decision to make because it needed to balance sluggish growth and low inflation against fears of heating up the property market with another rate cut.

In a separate speech, RBA Governor Philip Lowe acknowledged while the economy was growing in line with expectations and was likely to pick up, the stronger Australian Dollar continued to be a problem and was keeping inflation below the targeted range of 2 to 3 percent.

“It is also weighing on the outlook for output and employment,” Dr. Lowe said in a statement accompanying the decision.

“An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”

Dr. Lowe also said that “Residential construction activity remains at a high level, but little further growth is expected.”

“Housing prices have been rising briskly in some markets, although there are signs that conditions are easing, especially in Sydney. In some other markets, prices are declining,” Dr. Lowe noted.

In other news, in Australia, AIG Services Index came in at 53.0, below last month’s 56.4. The Current Account was -9.6 billion, lower than the -7.9 billion forecast. Last month’s number was revised downward to -4.8 billion.

In New Zealand, ANZ Commodity Prices came in at -0.8%.

Forecast

The key takeaways from the RBA statement and RBA governor Philip Lowe’s speech were that the high Australia Dollar was weighing on the economic growth, low inflation and employment. It also noted that low interest rates continue to support the economy and current policy “is consistent with sustainable growth.” Lastly, house prices are easing, especially in Sydney.

AUD/USD and NZD/USD investors seem to be shrugging off the RBA statement, focusing instead on the weaker U.S. Dollar, low U.S. interest rates and increased demand for higher risk assets.

Traders may already be looking ahead to Wednesday’s Australian GDP data. It is expected to show the economy is growing marginally slower than the implied RBA annualized forecast of 1.75 percent.

The current daily chart pattern indicates the AUD/USD could strengthen over .7966 and weaken under .7936. The NZD/USD is attracting some counter-trend buying inside a technical retracement zone at .7187 to .7100. The short-covering rally could continue on a sustained move over .7187. However, I wouldn’t worry about a change in trend to up unless the buying is strong enough to overtake .7298.