AUD/USD and NZD/USD Fundamental Forecast – April 4, 2017

The Australian and New Zealand Dollars are trading lower on Tuesday with the Aussie leading the way. Australian investors reacted strongly to the dovish language used by the Reserve Bank of Australia in its latest monetary policy statement. Kiwi investors followed the Aussie lower on the idea that economic weakness will spread throughout the region.

At 0944 GMT, the AUD/USD is trading .7554, down 0.0050 or -0.65%. The NZD/USD is at .6978, down 0.0036 or -0.51%.

Early Tuesday, the Reserve Bank of Australia decided to keep its cash rate at a record low of 1.5 percent on Tuesday, but the Aussie plunged after the central bank hinted that it was not too confident about domestic labor and inflation conditions.

The AUD/USD plunged to a three-week low after the RBA warned of economic risks posed by rising household debt. The main concerns for the central bank as outlined in its statement were housing market risks, lower inflation and growth concerns in China.

In a statement, Australia’s central bank Governor Philip Lowe attacked the nation’s banks over lax lending practices and warned regulators that the RBA is prepared to consider further prudential measures to steps announced last week.

“Too many loans are still made where the borrower has the skinniest of income buffers,” Lowe said in the text of a speech to a Reserve Bank of Australia board dinner in Melbourne Tuesday. “In some cases, lenders are assuming that people can live more frugally than in practice they can, leaving little buffer if things go wrong.”

The governor also highlighted the weakness in the nation’s labor market. Conditions remain “pretty soft,” employment growth in the overall economy is strengthening,” the governor said.

Lowe also tied wages and household debt together. “Slow growth in wages is making it harder for some households to pay down their debt,” Lowe said. “For many people, the high debt levels and low wage growth are a sobering combination.”

The NZD/USD followed the Australian Dollar lower in reaction to the RBA announcement. Local data also showed New Zealand firms grew less optimistic about the country’s economic conditions, even as their own activity remained relatively robust.

Later today, investors will get the opportunity to react to the latest GlobalDairyTrade (GDT) auction. The early forecast shows that investors don’t expect too much change in the report.