AUD/USD and NZD/USD Fundamental Daily Forecast – RBNZ Gov. Orr Predicts 1% GDP Growth after Recession

The Australian and New Zealand Dollars are edging higher on Thursday after the Fed released the minutes of its Jan. 31-Feb. 1 policy meeting the previous session. Helping to underpin the currencies are a dip in Treasury yields and a weaker U.S. Dollar.

The Aussie and Kiwi are also bouncing back after mixed performances on Wednesday. The Australian Dollar was pressured by a wages report that failed to meet expectations. The New Zealand Dollar inched higher after the RBNZ raised interest rates and promised more to follow.

At 05:36 GMT, the AUD/USD is trading .6823, up 0.0017 or +0.25% and the NZD/USD is at .6241, up 0.0022 or +0.36%. On Wednesday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $67.35, down $0.48 or -0.71%.

Also on Wednesday, RBNZ Governor Orr gave a speech on the economy. Early Thursday, RBA Deputy Governor Bullock was scheduled to speak. Australian Private Capital Expenditures also rose more than expected.

Fed Policymakers Resolved to Keep Fighting Inflation – Fed Minutes

To Australian and New Zealand Dollar traders, the Fed minutes released on Wednesday came across as hawkish after officials indicated that there are signs inflation is coming down, but not enough to counter the need for more interest rate increases.

While the Jan. 31-Feb. 1 meeting concluded with a smaller rate hike than most of those implemented since early 2022, officials stressed that their concern over inflation is high.

Traders read the minutes as dated because since the Fed meeting, the economy has been running hot, prompting traders to drive up interest rate expectations to 5.35% by July. This is up from 4.88% at the end of January. This has been the primary reason for the weakness in the AUD/USD and NZD/USD.

RBNZ Predicts Recession

The Reserve Bank of New Zealand (RBNZ) is predicting that New Zealand will move into a recession in the second quarter of this year before growth resumes in 2024.

RBNZ Governor Adrian Orr earlier told the committee that the central bank predicts that over the next one to two years the rebuild will boost GDP by around 1%.

“We put in our predictions around a 1% increase in GDP over the next one to two years, which is a reflection of that previous scale of the rebuild activities going on,” he said. But added:  “We know that entirely new construction and the rebuild will increase the level of activity and that will put upward pressure on inflation.”

Short-Term Outlook

The next major move in the AUD/USD and the NZD/USD will be determined by the U.S. Dollar, which will be dependent on Treasury yields and U.S. economic data.

Moving the greenback on Thursday and consequently the Aussie and Kiwi will likely be the U.S. Preliminary GDP, Weekly Unemployment Claims and Preliminary GDP Price Index reports.

Traders are looking for the GDP to come in at 2.9%, unchanged from the previous reading. Weekly jobless claims are expected to rise to 200K, up from 194K and the GDP Price Index is expected to come in unchanged from the previous reading at 3.5%.

The GDP report will represent growth in the resilient economy. The jobless claims data will continue to show a tight labor market and the GDP Price Index is another inflation indicator.

Strong reports will solidify the chances of more rate hikes from the Fed, which could weigh on the AUD/USD and NZD/USD.

For a look at all of today’s economic events, check out our economic calendar.