AUD/USD and NZD/USD Fundamental Daily Forecast – Steady Ahead of RBA Statement

The Australian and New Zealand Dollars closed lower on Monday ahead of a few key domestic and external events including the Reserve Bank of Australia’s latest interest rate decision, the U.S. Federal Reserve meeting minutes and the U.S. Non-Farm Payrolls report. Squeezed in between the reports is the U.S. Fourth of July bank holiday.

The U.S. Dollar’s strength on Monday pressured the Aussie and the Kiwi after last week’s strong surge. Overbought technical conditions may have also contributed to the weakness in the AUD/USD and NZD/USD.

Early Tuesday, the RBA will release its latest monetary policy statement.

Last week, investors became a little excited about the possibility the RBA could sound a more hawkish tone, following a string of hawkish comments from several officials from the European Central Bank, the Bank of England and the Bank of Canada.

Although Australia’s employment numbers have been more solid lately and iron ore prices have mounted a strong recovery, I expect the RBA to leave interest rates unchanged.

A volatile reaction could be ignited if the RBA addresses the state of the economy and the value of the currency. Therefore, the central bank is going to be careful about what it says in the statement.

The AUD/USD could rally sharply higher if the RBA changes its stance from neutral to a little hawkish. The Forex pair could also move higher if the RBA mentions the strength of the economy.

We could see a volatile move to the downside if the RBA maintains its neutral stance or if it decides to talk down the currency.

There are no major reports from the U.S. on Tuesday due to the bank holiday.

In New Zealand, investors will get the opportunity to react to the latest NZIER Business Confidence report. The last report showed a reading of 17. The Global Dairy Trade Auction (GDT) will also take place on Tuesday. The NSX Dairy Derivatives market expects daily commodity prices to ease, with the exception of whole milk powder, which is expected to see a reasonably flat result.

In Australia, traders will get the opportunity to react to the latest monthly retail sales data. It is expected to rise 0.2%, which will be below last month’s 1.0% read.

Any reaction to the retail sales report will be short-lived due to the RBA announcement at 0430 GMT. Remember that the challenge for the RBA, and the reason we could see increased volatility, is to find a way to word its statement that limits any risk of the Australian Dollar trending higher.

The RBA also has to avoid any comments about the economy that could come across as more positive than a month ago. This could be viewed by bullish traders as the RBA joining the other hawkish central bankers in calling for higher interest rates.