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AUD/USD and NZD/USD Fundamental Weekly Forecast – Money Markets Signaling RBA Rate Cut

James Hyerczyk

Worries over the spread of the coronavirus outside of China drove the Australian and New Zealand Dollars sharply lower last week. This week, traders will continue to monitor new developments over the spread of the virus, but the primary focus for traders will be on economic reports from China and Australia, and the Reserve Bank of Australia’s (RBA) interest rate and monetary policy decisions.

Last week, the AUD/USD settled at .6506, down 0.0121 or -1.83% and the NZD/USD finished at .6247, down 0.0106 or -1.66%.

The Aussie and the Kiwi are likely to feel some heat early in the week due to the release of weaker than expected Chinese Manufacturing and Non-Manufacturing PMI reports on Saturday.

China’s Official PMI Indexes Plummet to Record Lows

The official manufacturing purchasing managers’ index (PMI) slowed to 35.7, the National Bureau of statistics (NBS) said on Saturday, having slipped to 50.0 in January when the full impact of the coronavirus was not evident.

Analysts were looking for the February reading to come in at 45.0. A reading below 50 indicates a contraction in sector activity. The farther the figure is below 50, the greater the contraction in activity.

China’s services sector activity shrank at a record pace in February, official data showed on Saturday. The official non-manufacturing PMI fell to 29.6, from 54.1 in January, the National Bureau of Statistics said. The 50-point mark separates growth from contraction on a monthly basis. Analysts were looking for a reading of 51.4.

Earlier, China reported that its factory activity contracted at the fastest pace on record in February. China’s official Purchasing Managers’ Index (PMI) fell to a record low of 35.7 in February from 50.0 in January. Analysts expected the February PMI to come in at 46.0.

Coronavirus Impact May Force RBA to Cut Rates Again

With the global equity markets going into a freefall last week as the ever-spreading coronavirus sparked fears of a potential global recession, the Reserve Bank of Australia could cut interest rates this week to soften the impact of the decline.

Policymakers will meet on Tuesday, a day ahead of the release of the latest quarterly economic growth figures, which economists expect will again show a sluggish expansion, even before the outbreak of COVID-19.

According to the latest money market data, the RBA will reduce the cash rate to a fresh record low of 0.5%. Early last week, the money markets were saying there was virtually no chance of a rate cut, but all of that changed during last week’s rout of the U.S. equity markets.

This article was originally posted on FX Empire