AUD/USD and NZD/USD Fundamental Weekly Forecast – RBA, RBNZ Expected to Leave Interest Rates Unchanged

The Australian and New Zealand Dollars finished mixed last week. Both were affected by domestic data and a series of events in the United States.

The AUD/USD settled at .7649, down 0.0026 or -0.34% and the NZD/USD closed at .6906, up 0.0034 or +0.50%.

The Australian Trade balance surprised by coming in at 1.75 billion, higher than the 1.42 billion forecast. However, Retail Sales were flat at 0.0% versus a 0.4% estimate.

The New Zealand Employment Change report showed a 2.2% increase, beating the forecast of 0.8%. The Unemployment Rate also fell to 4.6% from 4.7%.

As widely expected, the U.S. Federal Reserve kept the target range for its benchmark rate at 1.00% to 1.25%. The Fed also upgraded its assessment of the economy, stating that “economic activity has been rising at a solid rate despite hurricane-related disruptions.” The Fed also noted that core inflation has remained soft. Lastly, the central bank said that its balance-sheet normalization program was initiated last month and that it’s moving along as expected.

President Trump nominated Fed Governor Jerome Powell to serve as the next chair of the Federal Reserve last Thursday afternoon. He is going to replace current chart Janet Yellen, whose four-year term ends in February 2018.

The U.S. House of Representatives’ tax plan includes lowering the corporate tax rate to 20% and a spattering of tax breaks for individuals.

The Non-Farm Payrolls report showed the economy added 261,000 jobs in October, lower than the expected 313,000 forecast. The unemployment rate fell to 4.1%, its lowest level since 2001. Although the report was under the estimate, the net revision to the previous two months showed an increase of 90,000. Traders also noted that September’s hurricane-influenced report was upwardly revised to an 18,000 gain from a 33,000 decline, a net positive of 51,000. Additionally, average hourly earnings grew 2.4% over the past year, notably lower than the 2.8% gain reported last month.

Forecast

There are no major U.S. reports this week but Fed Chair Janet Yellen will deliver a speech on Tuesday.

Central bank activity this week could trigger early short-covering rallies in the Australian and New Zealand Dollars.

The week starts with New Zealand releasing a report on Inflation Expectations. The last quarterly report showed inflation expectations at 2.1%.

Early Tuesday, the Reserve Bank of Australia will release its RBA Rate Statement. It is widely expected to leave its benchmark interest rate unchanged. On Friday, the RBA will release its monetary policy statement.

Early Thursday, the Reserve Bank of New Zealand will release its rate statement. It is also widely expected to leave its benchmark interest rate unchanged. The RBNZ will also hold a press conference where it is likely to discuss the impact of the new government on monetary policy.