Yahoo Finance AUD/USD and NZD/USD Fundamental Weekly Forecast – Appetite for Risk Will Drive Price Action
The Australian and New Zealand Dollars broke sharply last week amid expectations that domestic interest rates would remain at historical lows longer-than-expected and rising geopolitical turmoil that dampened demand for higher-yielding currencies.
Last week, the AUD/USD settled at .7295, down 0.0102 or -1.38% and the NZD/USD settled at .6577, down 0.0171 or -2.53%.
Australian Dollar
The Australian Dollar weakened as the central bank showed no intention of raising rates over the near future.
Last week, the RBA ended its August monetary policy meeting by holding rates at a record low of 1.50 percent, marking two whole years with no move in interest rates, the longest policy pause in its modern history.
“Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual,” RBA Governor Philip Lowe said in a statement, reiterating his previous outlook.
Late in the week, the RBA issued an upbeat monetary policy report, with policymakers continuing to project that “above trend” economic growth will drive the unemployment rate lower, and wages higher, thereby pushing consumer price inflation higher over coming years.
Despite the upbeat report, investors felt the projected increase in inflation is still insufficient for markets to boost expectations for an Australian interest rate rise before late 2019.
New Zealand Dollar
The New Zealand Dollar closed sharply lower against the U.S. Dollar last week after the Reserve Bank unexpectedly committed to keep interest rates at record lows through to 2020 on disappointing economic activity. The dovish news caught investors off-guard, fueling a massive sell-off in the currency.
The Reserve Bank of New Zealand kept its official cash rate on hold at 1.75 percent in a widely expected move. It also downgraded its forecasts for 2019 gross domestic product growth to 2.6 percent from 3.1 percent.
The RBNZ sees the cash rate steady for much longer than earlier forecast, signaling stable rates until late 2020. Back in May, the central bank had projected rates at 2.0 percent by March 2020.
Forecast
The table has been set for further weakness in the Australian and New Zealand Dollars. However, short-term technical factors could at times trigger a few short-covering rallies due to oversold conditions. With the central bank activity out of the way, traders are going to focus on appetite for risk due to the political uncertainty in Turkey. Prices could plunge further if the situation in Turkey raises contagion fears in the Euro Zone.
There are no major reports in New Zealand. In Australia, investors will get the opportunity to react to the Wage Price Index on Wednesday, the Employment Change and Unemployment Rate on Thursday and a speech by RBA Governor Philip Lowe on Friday.
Investors will also get the opportunity to react to data from the U.S. including Core Retail Sales, Retail Sales and Building Permits.
Besides the contagion fears, traders will also be watching for any escalation in the trade spat between the United States and China. The Aussie, in particular, will feel the heat if trade conditions worsen.
This article was originally posted on FX Empire
