AUD/USD and NZD/USD Fundamental Weekly Forecast – Eyes on RBA Minutes, Aussie Employment Data

Australian and New Zealand Dollars finished higher last week, underpinned by increased demand for higher-risks assets on increased hopes for a faster than expected end to the coronavirus pandemic after Pfizer announced the development of a vaccine that tested at 90% effective.

That news spiked the Aussie and Kiwi higher early in the week then investors held on the rest of the week as market participants questioned the timing of the release of any vaccines and the distribution methods. Furthermore, COVID-19 cases continued to rise at a rapid rate in the United States, threatening to derail the global economic recovery.

Last week, the AUD/USD settled at .7269, up 0.0010 or +0.13% and the NZD/USD finished at .6847, up 0.0075 or +1.10%.

Australian Dollar

The Australian Dollar traded slightly lower against its U.S. counterpart early in the week then rallied into its highest level since September 16 before working lower the rest of the week as traders weighed news about progress in the development of a coronavirus vaccine.

The price action suggests traders may have overreacted to the vaccine news, given there’s still some way to go prove that it’s safe. The news revealed that it’s reasonably effective, but safety wasn’t addressed. Once traders read the fine print, they may have realized we still have a long way to go and backed away from buying aggressively.

New Zealand Dollar

The New Zealand Dollar shot to its highest level since March of 2019, underpinned by the vaccine news and Joe Biden’s clinching of the U.S. presidency over last weekend. However, the biggest upside reaction was fueled by an announcement from the Reserve Bank of New Zealand (RBNZ), which dampened the chances of a cut to negative rates next year.

The RBNZ introduced a new funding program last Wednesday that would reduce costs for lenders, while holding its benchmark interest rate at record lows and signaling its readiness to shift to negative rates to support the economy.

The RBNZ held the official cash rate (OCR) steady at 0.25%, as markets expected, and re-iterated rates would stay there until March 2021.

That commitment and the new funding-for-lending program (FLP) for banks led markets to pare chances of negative rates. This drove the Kiwi sharply higher.

In a news conference, Governor Adrian Orr said the lending scheme to be launched in December would likely have a greater impact on rates than cutting the OCR to 0.1. Orr also said reducing banks’ funding costs would encourage them to offer cheaper loans. He further added it was “too early to tell” if the possibility of negative rates had now decreased, while leaving the door ajar for further stimulus.

Weekly Forecast

The major economic news will come out of Australia this week, they include speeches by RBA Governor Philip Lowe, the RBA Monetary Policy Meeting Minutes and the Australian Employment Change and Unemployment Rate reports.

However, prices are largely expected to remain primarily influenced by demand for risky assets in the wake of the surge in COVID-19 cases in the United States and Europe. Furthermore, any news about an effective vaccine is likely to be discounted as traders are likely to continue to doubt whether it will be released and distributed in time to prevent double-dip recessions in major economies.