AUD/USD and NZD/USD Fundamental Analysis – Forecast for the Week of May 1, 2017

The Australian and New Zealand Dollars closed lower last week with the Kiwi reaching its low for the year while plunging sharply. Investors in both currencies shrugged off a bullish tone for higher-yielding assets, instead choosing to focus on domestic issues.

The AUD/USD closed the week at .7486, down 0.0057 or -0.75% and the NZD/USD finished the week at .6859, down 0.0168 or -2.40%.

The Australian Dollar fell sharply last week after the latest consumer inflation numbers reduced the chances of a rate hike by the Reserve Bank of Australia in the near futures.

Australian inflation was projected to come in at 0.6% from 0.5% quarter-on-quarter but remained at 0.5%. Yearly inflation rose from 1.5% to 2.1%, but missed the expected gain to 2.2%.

To some, the numbers looked optimistic, but missing analysts forecasts diminished any optimism that had been rising ahead of this week’s Reserve Bank of Australia (RBA) meeting. This even after inflation reached the RBA’s 2-3% target bank for the first time in two years.

The New Zealand Dollar’s sell-off was fueled by growing concerns about U.S. protectionist policies. Last week, the U.S. government announced stricter tariffs on softwood lumber imported from Canada, worsening concerns that the U.S. Trump Administration will continue to crack down on U.S. trade.

Kiwi investors believe that New Zealand will fall under review from the U.S. and that it’s just a matter of time before the U.S. takes against their trade. Of particular interest is the dairy market.

Forecast

The first week in May is likely to be volatile due to the plethora of economic data including an RBA monetary policy meeting and RBA Rate Statement. New Zealand will release its latest data on Employment Change and the Unemployment Report. Traders will also be occupied by a U.S. Federal Reserve meeting and Federal Open Market Committee statement. Additionally, investors are going to get to react to the latest U.S. Non-Farm Payrolls report.

The U.S. Federal Reserve is not likely to raise rates at this meeting, but its statement will be watched closely for a possible June rate hike.

The RBA is likely to remain neutral on interest rates. It’s not likely to issue a hawkish statement because concerns remain over Australia’s jobs market. A dovish statement may also be a remote possibility because of the overheated housing market.

NZD/USD will continue to monitor the Trump Administration’s foreign trade policy. Some traders are saying last week’s sell-off may have been a little exaggerated so we may see some short-covering.