AUD/USD and NZD/USD Fundamental Weekly Forecast – Increased Volatility Expected in Response to NZ Election Results

The New Zealand Dollar posted a volatile two-sided move last week but by the end of week, buyers came in to support the market and drive it higher. The Kiwi was pressured by hawkish Fed news, but supported by New Zealand election polls.

The NZD/USD settled the week at .7328, up 0.0040 or +0.55%.

The New Zealand Dollar traded at its highest level in 6 ½ weeks as one poll showed the country’s National Party pulled ahead of the rival Labour Party ahead of a general election this week-end.

Support for the National Party jumped 6 points to 46 percent, according to the One News-Colmar Brunton opinion poll, while support for the opposition Labour party slumped by seven points to 37 percent.

Australian Dollar

An optimistic Reserve Bank of Australia (RBA) drove the Australian Dollar higher early in the week, but prices tumbled by the end of the week in reaction to the Fed’s hawkish tone.

The AUD/USD settled at .7959, down 0.0041 or 0.51%.

According to the minutes of the RBA’s September 5 meeting, the central bank remains upbeat on growth, indicating that it believes the economy is moving into a new phase as it shrugs off a lengthy downturn in mining investment while job market conditions also improve.

In the minutes, the RBA noted a broad job market improvement, and that recent data continued to support its forecast for 3.0 percent GDP growth in 2018.

Forecast

The NZD/USD could face a mixed reaction or volatility at the start of the week due to the outcome of the New Zealand National election.

New Zealand’s ruling National Party has won the most votes in the country’s general election but not enough to form a government with forming a coalition.

This means New Zealanders may need to wait for days or weeks before knowing who their next leader will be as the different political parties try to negotiate with each other to secure a majority.

Later in the week on Thursday, September 28 (Weds. 20:00 GMT), the Reserve Bank of New Zealand will release its latest monetary policy decision. It is widely expected to leave its benchmark interest rate unchanged at 1.75%.

The RBNZ Rate Statement is likely to show no major change in policy and that the central bank will continue its neutral stance.

In the U.S. this week, the major reports include the Conference Board’s Consumer Confidence report, Durable Goods and Final GDP. Fed Chair Janet Yellen is also expected to give a speech on Tuesday at 1645 GMT.

With the Fed leaving open the possibility of a third rate hike in December, each U.S. economic report from now until the end of the year will take on greater importance so investors should watch for volatility with each release.