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AUD/USD and NZD/USD Fundamental Weekly Forecast – No RBA Rate Cut in October, but Odds Increase for November Action

James Hyerczyk
·3 mins read

The Australian and New Zealand Dollars closed higher last week after recovering from the previous week’s steep sell-off. That move was fueled by dovish outlooks from their respective central banks.

Last week, the direction of the currencies was fueled by risk appetite. The Aussie and the Kiwi rose most of the week because sentiment turned bullish. The catalyst behind the change in tone was renewed hope for a U.S. fiscal stimulus deal. On Friday, the currencies gave back some of those early weekly gains after President Trump announced he had contracted coronavirus.

The AUD/USD settled the week at .7164, up 0.0133 or +1.89% and the NZD/USD finished the week at .6637, up 0.0091 or +1.38%.

Aussie, Kiwi Economic News

Economic data did not help either currency. In Australia, Building Approvals fell 1.6% from the previously reported 12.2%. Private Sector Credit was flat, but traders considered that an improvement.

The AIG Manufacturing Index fell to 46.7 from 49.3. Retail Sales posted a very disappointing -4.0% read. This was well below the 3.2% forecast

Australian retail sales fell 4% in August from the month earlier, official data showed on Friday, with the virus-stricken state of Victoria bearing the brunt of the downturn. The result follows gains of 3.2% and 2.7% in July and June respectively, according to data from the Australian Bureau of Statistics (ABS).

Victoria suffered a 12.6% drop as a strict lockdown saw many businesses shut their doors to customers. There were also declines in most other states.

Annual growth was still solid with sales up 7.1% compared to August 2019.

In New Zealand, Building Consents rose 0.3%, improving from -4.6% and ANZ Business Confidence came in at -28.5%.

New Zealand business sentiment improved in September amid growing confidence that the COVID-19 outbreak in the country is under control, an ANZ Bank survey showed on Wednesday.

The survey’s headline measure showed a net 28.5% of respondents expected the economy to deteriorate over the year ahead. It compared with a 41.8% pessimism level in the previous poll in August.

A net 5.4% of respondents expected their own businesses to be weaker in the next 12 months, from 17.5% who had expected softer conditions at the end of last month.

Weekly Forecast

The Focus will be on the Australian Dollar this week with the Reserve Bank of Australia (RBA) expected to make a major decision on its cash rate. Additionally, the government will release its Annual Budget.

As of Friday’s close, market consensus was evenly split on whether the RBA will adjust the cash rate in October or November. A 50/50 consensus usually means no rate cut.

Rather than another full 25 basis point cut, it seems most market participants are anticipating some version of “micro easing” such as lowering the official cash rate from 25 bps to 10 bps this month or next.

“Consequently, financial markets are now anticipating a roughly 50% chance the RBA will cut the official cash rate before the end of the year,” according to Brian Reid, Treasurer of Newcastle Permanent.

For weeks, investors had been pricing a rate cut to 0.10%, based on forecasting from Westpac. But that changed last week with Westpac economists now forecasting November instead, at the November 3 meeting.

In changing their forecast, they said the central bank would not want to take any of the focus away from the government budget report.

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

This article was originally posted on FX Empire