AUD/USD and NZD/USD Fundamental Weekly Forecast – Aussie Supported by Trade Deal but Capped by Rate Cut Fears

The Australian and New Zealand Dollars finished mixed last week, reflecting the divergence in monetary policy between the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ). The RBA plans to keep interest rates unchanged while the RBNZ now says the next move in its official cash rate (OCR) is going to be down. The Australian Dollar was further supported by optimism over a U.S.-China trade deal and a surge in domestic retail sales. The Aussie and Kiwi showed little reaction to last week’s mixed U.S. economic data.

Last week, the AUD/USD settled at .7105, up 0.0009 or +0.12% and the NZD/USD finished at .6735, down 0.0071 or -1.05%.

U.S.-China Negotiations Continue to Progress Toward Trade Deal

US-China trade talks continue to move toward a deal to end the more-than-year-long trade dispute. President Trump said on Thursday that the two nations are aiming to reach a deal in the next four weeks but he didn’t announce a much-anticipated summit with Chinese President Xi Jinping. Trump also warned Beijing that it would be difficult to allow trade to continue without a pact.

The week-ended with Chinese Vice Premier Liu He saying a new consensus had been reached between Beijing and Washington on U.S.-China trade, Chinese official state media Xinhua reported on Friday.

RBA Fails to Reverse Expectations of Rate Cut

Sellers hit the Australian Dollar on Tuesday after the Reserve Bank of Australia’s monetary policy statement and comments from RBA Governor Philip Lowe failed to convince traders that a rate cut wasn’t forthcoming later in the year. The RBA kept its benchmark cash rate unchanged at 1.5% where it has been since August 2016. Policymakers also maintained a neutral bias on policy, while implying it’s not considering a change in the near-term. However, several signs of weakness including slow growth and low inflation offset solid labor market conditions, giving traders plenty of reasons to believe lower cash rates may be warranted in the future.

In Other News

Some economists are saying the RBNZ will cut the OCR twice this year with the first cut coming as early as May; others don’t expect a rate cut until August. This means the interest rate differential between the two countries will narrow. As of their last policy meetings, the RBA’s cash rate is currently 1.5 percent while the RBNZ’s OCR is at 1.75 percent – the record low where it has sat since November 2016.

Weekly Forecast

There are no major events out of New Zealand this week, but traders have been given their dovish marching orders from the RBNZ.

In Australia, investors will get the opportunity to react to Westpac Consumer Sentiment and the RBA Financial Stability Review. Furthermore, RBA Assistant Governor Debelle is scheduled to speak. The main focus for traders could be on U.S.-China trade talks.

In the U.S., investors will get the opportunity to react to major economic reports from the U.S. including the Consumer Price Index, the Producer Price Index and the Federal Open Market Committee policy meeting minutes. A slew of FOMC Members are also scheduled to speak.

Traders will be paying particular attention to the CPI data especially because of the dip in U.S. Average Hourly Wages. The economy may be holding steady, but the Fed isn’t likely to switch gears to hawkish again if inflation continues to decline.