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AUD/USD and NZD/USD Fundamental Weekly Forecast – RBA Decisions Step Aside for US Election Reaction

James Hyerczyk
·3 min read

The Australian and New Zealand Dollars finished lower last week as U.S. fiscal stimulus talks fell apart and demand for higher risk assets plunged ahead of Tuesday’s U.S. presidential election. Volatility in the Forex market spiked higher and investors worried a resurgence in COVID-19 cases in the United States and Europe would derail the global economic recovery. Meanwhile, Aussie traders braced for a widely expected rate cut on November 3.

Last week, the AUD/USD settled at .7028, down 0.0108 or -1.52% and the NZD/USD closed at .6613, down 0.0078 or -1.17%.

Trump Concedes No Coronavirus Economic Relief Deal Before Election Day

President Donald Trump acknowledged last Tuesday that a coronavirus economic relief deal would likely come after the November 3 election, with the White House unable to bridge differences with fellow Republicans in the U.S. Senate as well as congressional Democrats.

“After the election we’ll get the best stimulus package you’ve ever seen,” Trump told reporters at the White House before leaving on a campaign trip.

House Speaker Nancy Pelosi responded with, “The President’s words only have meaning if he can get Mitch McConnell to take his hand off the pause button.”

US Stock Market Plunge Drives Down Demand for Risky Currencies

The major U.S. stock indexes plunged last week as rising COVID-19 weighed on investor sentiment. Prices were also pressured by dismal business updates from technology heavyweights. The benchmark S&P 500 Index wrapped up its worst week since mid-June, while Wall Street’s fear gauge held at a 20-week high on fears of a contested election.

Europeans Urge Wider Curbs as COVID Sweeps Continent, Batters US

European Union officials warned Europe to be ready for wider COVID restrictions as infections surged across the continent, France and Germany prepared curbs almost as strict as their spring lockdowns and cases soared across the United States.

England will adopt a second national lockdown as coronavirus cases run rampant in the United Kingdom, closing all nonessential businesses but leaving schools open for the next four weeks as it tries to suppress the virus, Prime Minister Boris Johnson announced on Saturday.

Weekly Forecast

The U.S. Dollar, risk appetite and the reaction to the widely expected RBA decisions will drive the price action this week. The direction of the greenback will probably carry more weight. I think a Joe Biden victory will likely put pressure on the dollar since his win should lead to more stimulus. If Trump wins, we could see a volatile response in the financial markets, which could make the U.S. Dollar an attractive safe-haven.

On Tuesday, the RBA is widely expected to ease monetary policy, given the commentary by central bank officials in recent weeks, particularly its governor Philip Lowe. Economists widely expect the RBA will cut the cash rate to 0.1 percent from the already record low of 0.25 percent, which has stood since March.

The central bank will also make the same reduction to its three-year bond yield target rate and its term funding facility rate for banks.

At the same time, it is also expected to announce an extension of its bond buying program to five to 10-year bonds in a further attempt to keep market interest rates, and subsequently funding costs, low.

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

This article was originally posted on FX Empire