Canada markets open in 4 hours 34 minutes

AUD/USD and NZD/USD Fundamental Weekly Forecast – Aussie, Kiwi Weakness Should Resume if Fed is Hawkish

James Hyerczyk

The Australian and New Zealand Dollars finished mixed last week with the Aussie edging higher on improving relations between the United States and China. Gains were limited by better-than-expected U.S. economic data and expectations of an additional rate cut by the Reserve Bank of Australia (RBA) later in the year.

The kiwi was pressured mostly by the U.S. economic news and general uncertainty over the timing of the next rate cut by the Reserve Bank of New Zealand (RBNZ). Kiwi traders showed little reaction to thawing U.S.-China trade relations.

Last week, the AUD/USD settled at .6879, up 0.0029 or +0.42% and the NZD/USD finished at .6377, down 0.0050 or -0.78%.

US-China Soften Tone

Last week, Washington and Beijing toned down signs of any previous escalation in their dispute with reconciliatory gestures from both nations that boosted risk appetite in the markets, while reducing gold’s appeal as a safe-haven asset.

President Trump said he was delaying plans to impose an additional 5 percent duty on $250 billion worth of Chinese goods until October 15, or two weeks later than now scheduled. China renewed its purchases of American farm goods, with Trump saying it was expected Beijing would purchase “large amounts” of agricultural products. The President also said Thursday that he would consider a temporary trade deal with the Chinese though he’d prefer to hash out a permanent accord.

Better US Economic Data Reduces Chance of Recession

Last week, the U.S. Labor Department reported its consumer price index excluding the volatile food and energy components gained 0.3% for a third straight month. In the 12 months through August, the core CPI increased 2.4%, the most since July 2018, after climbing 2.2% in July.

Additionally, U.S. retail sales increased more than expected in August, pointing to solid consumer spending that should continue to support a moderate pace of economic growth.

The news helped drive up U.S. Treasury yields as investors bet that an improving economy would reduce the chances of a recession and additional rate cuts this year by the Federal Reserve, making the U.S. Dollar a more attractive investment.

Weekly Forecast

Besides the release of the U.S. Federal Reserve interest rate and monetary policy decisions on Wednesday, Aussie traders will have to deal with the RBA Monetary Policy Meeting Minutes on Tuesday and the Employment Change and Unemployment Rate on Thursday.

The Minutes are likely to say the RBA is taking a “wait and see” approach in regards to future rate cuts. They are also going to say that policymakers would like to see a lower unemployment rate and that tensions between the U.S. and China are still a major concern.

In New Zealand, traders will get the opportunity to react to the latest data on quarterly GDP. It is expected to show the economy grew by 0.4%, down from 0.6%. Traders could also start preparing for the RBNZ interest rate decision on September 24.

On Wednesday, investors will get the chance to react to the latest Federal Reserve interest rate and monetary policy decisions. The market has already priced in a 25-basis point rate cut. However, weeks ago, it was also pricing in a third rate cut this year in December. Since then the economy has shown improvement and U.S.-China trade tensions have eased, reducing the odds for a third rate cut.

The AUD/USD and NZD/USD could break sharply after the Fed announcements if central bankers come across as hawkish, leading to the reduction in the chances of another Fed rate cut before the end of the year.

This article was originally posted on FX Empire