AUD/USD and NZD/USD Fundamental Weekly Forecast – Volatility Likely with Release of RBA, Fed Minutes

A combination of investor risk aversion and domestic news drove the Australian and New Zealand Dollars lower last week. Losses were tempered however by disappointing U.S. inflation data which reduced the chances of a Fed rate hike later this year.

The New Zealand Dollar was under pressure all week due to domestic factors, but managed to mount a turnaround late in the week after the U.S. reported weaker-than-expected inflation news.

The NZD/USD settled at .7311, down 0.0101 or -1.36%.

The Reserve Bank of New Zealand left the official cash rate at 1.75 percent, a move widely expected by financial markets. However, the central bank is still indicating it expects to begin raising the benchmark OCR from next year.

Governor Graeme Wheeler said economic growth was expected to pick up in the coming months, supported by strong net migration, low interest rates and spending outlined in the May Budget.

Wheeler also said headline inflation was likely to decline and the outlook for tradables inflation was weak.

The Australian Dollar drifted sideways-to-lower most of the week until Friday’s release of the disappointing U.S. CPI data triggered a short-covering rally.

The AUD/USD settled the week at .7890, down 0.0038 or -0.48%.

Bearish traders continued to respond to the previous week’s dovish Reserve Bank of Australia monetary policy decision. Also pressuring the Aussie was disappointing trade balance data from China.

In Australian economic data, the AIG Construction Index came in slightly above expectations. The ANZ Job Advertisements report showed an increase of 1.5%.

Westpac Consumer Sentiment was a disappointing -1.12%. Home loans also came in under expectations with an increase of 0.5%, below the 1.5% estimate and 1.1% previous read.

Helping to support the AUD/USD and NZD/USD late in the week was the weaker-than-expected U.S. Producer Price Index and the disappointing U.S. Consumer Price Index reports. Both helped reduce the chances of a Fed rate hike later this year, helping to underpin the Australian and New Zealand Dollars against the U.S. Dollar.

Forecast

The AUD/USD and NZD/USD could be under pressure if an escalation of the conflict between the United States and North Korea encourages investors to dump higher-yielding assets.

Traditional fundamental data will be in focus as long as the U.S./North Korea situation remains in the hands of the diplomats negotiating a peaceful resolution.

Early in the week, traders will get the opportunity to react to New Zealand retail sales, Chinese industrial production and the Australian Monetary Policy Meeting Minutes.

Mid-week, the focus shifts to U.S. data. Traders will be watching the U.S. retail sales report and the FOMC Meeting Minutes.

The week winds down with New Zealand PPI data and Australian Employment Change and Unemployment Rate.