AUD/USD and NZD/USD Fundamental Weekly Forecast- RBNZ Should Leave Rates Unchanged; U.S. NFP on Tap

The Australian and New Zealand Dollars finished more than 1.50 percent lower last week with the Aussie changing its trend to down on the weekly chart. Both currencies were pressured by rising expectations for a third interest rate hike by the Fed before the end of the year. The New Zealand Dollar was under the most pressure because of political concerns and the Reserve Bank of New Zealand’s (RBNZ) monetary policy decision.

The AUD/USD settled the week at .7830, down 0.0129 or -1.63 percent and the NZD/USD closed the week at .7194, down 0.0134 or -1.83%.

The New Zealand Dollar slid against the U.S. Dollar at the start of the week after elections in the country set the stage for a period of political uncertainty.

The Kiwi was pressured by the results of New Zealand’s general election on September 24 which failed to deliver a clear result. According to protocol, party leaders now have to forge alliances to achieve a ruling coalition, which could result in either another term for the current center-right government, or a win for the center-left Labour Party.

The RBNZ left interest rates unchanged in a widely expected decision just days after a general election that could lead to a change in the central bank’s policy mandate.

At its first monetary policy meeting under interim chief Grant Spencer, the RBNZ left its official cash rate unchanged at 1.75%, as it continues to balance the need to nudge inflation higher against the risks of a frothy housing market.

There were no major economic reports from Australia last week so the volatile sell-off was all about rising U.S. Treasury yields and its impact on the interest rate differential between U.S. Treasury Bonds and Australian Government Bonds. The tightening of the spread made the U.S. Dollar a more attractive investment.

Forecast

Concerns over Fed policy are likely to continue to pressure the Aussie and Kiwi this week with the exception of a few counter-trend rallies due to oversold technical conditions.

We continue to expect the RBNZ to be accommodative for a considerable period while resisting the temptation to follow the lead of its global counterparts, like the Bank of Canada and the U.S. Federal Reserve.

Early this week, we expect the Reserve Bank of Australia to leave its benchmark interest rate unchanged at 1.50%. We also expect the central bank to say the Australian economy is expected to strengthen gradually, noting that business conditions have improved. It may also mention concerns over slow growth in real wages and high levels of household debt.

In the U.S., traders will get the opportunity to react to a speech by Fed Chair Janet Yellen. Last week, she shook up the markets when she delivered a hawkish message about interest rates. Also on tap this week is the U.S. Non-Farm Payrolls report. The market is not expecting a huge rise in the number of jobs added in September, but it will be watching the change in Average Hourly Earnings.