AUD/USD and NZD/USD Fundamental Weekly Forecast – Slew of Reports to Drive Prices This Week

The Australian and New Zealand Dollars finished lower last week with most of the damage done by domestic news.

The AUD/USD settled at .7386, down 0.0027 or -0.37%. The NZD/USD closed the week at .6855, down 0.0061 or -0.89%.

The Aussie Dollar fell to a 4-month low after disappointing retail sales reinforced expectations of neutral interest rates by the Reserve Bank of Australia for months to come. Retail sales fell by 0.1 percent from a month earlier, the Australian Bureau of Statistics said, compared with a 0.3 percent increase expected by economists.

Traders said demand for food retail and household goods contributed to the fall in March.

The report also said retail sales in the first quarter increased by just 0.1 percent, below the 0.5 percent growth expected by economists.

The Kiwi dropped after the Reserve Bank of New Zealand surprised investors by keeping its interest rate track unchanged, despite recent data showing a spike in inflation and a strong labor market.

The RBNZ kept the official cash rate at 1.75 percent as expected, and Governor Graeme Wheeler stuck to his view that the rate doesn’t need to move until 2019, saying a recent spike in inflation from movements in oil and food prices will only be temporary.

The monetary policy statement was far more dovish than traders expected, sending the NZD/USD plunging sharply lower. The statement and subsequent comments from Wheeler put the RBNZ at odds with a number of economists, who expect it will have to raise rates earlier than 2019, however Wheeler told Parliament’s finance and expenditure select committee that he wasn’t seeing significant wage inflation and that weaker than expected growth last year meant there wasn’t the same capacity pressures the bank may have been anticipating.

In economic news, the good news for the U.S. economy was higher than expected producer inflation data and better-than-expected weekly unemployment claims.

The AUD/USD and NZD/USD were supported late in the week by weaker-than-expected consumer inflation and retail sales. The best support was provided by the retail sales number because it raised concerns about the number of possible rate hikes by the Fed in 2017.

Forecast

The longer-term bias is to the downside for the Australian and New Zealand Dollars because of recent RBA and RBNZ decisions and while the Fed is widely expected to raise rates in June. We could see a little technical bounce because of oversold conditions. We also expect some position-adjusting because of the bearish U.S. retail sales report on Friday and its potential impact on future Fed rate hikes.

It’s a light schedule this week in the U.S. as far as economic data is concerned. The major reports are building permits and weekly unemployment claims.

Other reports include housing starts, capacity utilization, industrial production and the Philly Fed Manufacturing Index.

In New Zealand, traders will get the opportunity to react to the latest data on retail sales, the GDT Prices and Producer Price Input.

In Australia, the key reports are the monetary policy meeting minutes, employment change and the unemployment rate.