Australia Markets closed

AUD/USD and NZD/USD Fundamental Daily Forecast – Look for RBA to Lower GDP, Inflation Forecasts

James Hyerczyk
Like the other major central bankers, look for the RBA to acknowledge the weakening global economy and the greater risks ahead if the trade dispute between the United States and China continues. Furthermore, the RBA is likely to acknowledge some of the strength in the economy especially the labor market, but the central bank may be forced to cut its forecast for GDP and inflation.

The Australian and New Zealand Dollars settled lower on Thursday and are now in a position to close nearly 2-percent lower for the week. The Aussie has been under pressure since Reserve Bank of Australia chief Philip Lowe suggested a rate cut was likely with growing concerns over the local economy. The Kiwi sold-off following weaker than expected employment data which caused traders to price in a possible rate cut by the Reserve Bank of New Zealand.

At 00:11, the AUD/USD is trading .7091, down 0.0013 or -0.16% and the NZD/USD is at .6740, down 0.0009 or -0.16%.

Australian Dollar Recap

Earlier in the week, the RBA kept its benchmark interest rate at a record low of 1.5 percent for the 30th consecutive month in the wake of the banking royal commission’s damning report into the finance sector and accelerating house price declines in Sydney and Melbourne.

For months, policymakers had maintained a hike in the cash rate was the most likely move, but in his speech before the National Press Club in Sydney, he said the RBA might need to change that outlook.

“Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios,” he said.

“Today, the probabilities appear to be more evenly balanced.”

The financial markets are pricing in the possibility of at least two rate cuts by December. This news is creating the most downside pressure.

New Zealand Dollar Recap

The NZD/USD has lost over 2-percent in the past two trading sessions, as investors increased bets on the risk of a cut in interest rates. The Reserve Bank of New Zealand will hold its first meeting of the year next week, where it is likely to lean toward cutting rates due to the weakening economy.

Sellers started hitting the Kiwi hard early Wednesday after the Aussie plunged. The selling pressure intensified early Thursday after weaker than expected employment figures revived the possibility of a rate hike by the RBA.

The unemployment rate came in at 4.3 percent in the fourth quarter. This was well above the 4.1 percent forecast. The third quarter figure rose to 4 percent from 3.9 percent. Furthermore, the number of people employed rose just 0.1 percent while the Labor Cost Index rose 0.5 percent against expectations of 0.6 percent.

Daily Forecast

Look for the RBA Monetary Policy Statement, due to be released at 00:30 GMT, to control the price action on Friday. I expect a less upbeat statement from policymakers given the events over the past two days.

Like the other major central bankers, look for the RBA to acknowledge the weakening global economy and the greater risks ahead if the trade dispute between the United States and China continues. Furthermore, the RBA is likely to acknowledge some of the strength in the economy especially the labor market, but the central bank may be forced to cut its forecast for GDP and inflation.

Please let us know what you think in the comments below. 

This article was originally posted on FX Empire

More From FXEMPIRE: