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AUD/USD and NZD/USD Fundamental Weekly Forecast – RBA Says QE is Option at 0.25%, Unlikely Over Near Term

James Hyerczyk

The Australian and New Zealand Dollars finished mixed last week as investors continued to bet on a potential rate cut by the Reserve Bank of Australia as this week’s monetary policy meeting, while Kiwi traders remained convinced the Reserve Bank of New Zealand won’t make a move until February.

Volume was extremely low because of a U.S. holiday shortened week. This held prices in check. Furthermore, there were no fresh developments regarding a trade deal, however, some investors are concerned that China may retaliate against the United States after President Trump signed legislation last Wednesday supporting the pro-democracy protesters in Hong Kong.

Last week, the AUD/USD settled at .6759, down 0.0027 or -0.39% and the NZD/USD closed at .6422, up 0.0017 or +0.26%.

Australian Economic News

Last week, Australian central bank Governor Philip Lowe revealed his position or intentions for unconventional policy:  A government bond-buying program is an option at a 0.25% cash rate, but the threshold for such stimulus hasn’t been reached and is unlikely to be in the near term.

“In my view, there is not a smooth continuum running from interest-rate reductions to quantitative easing,” Lowe, who has lowered the benchmark rate three times since June to 0.75%, said last Tuesday evening in the text of a speech in Sydney. “It is a bigger step to engage in money-financed asset purchases by the central bank than it is to cut interest rates.”

In his speech to Australian business economists, Lowe set out the conditions under which QE could be deployed. It would be considered if there were “an accumulation of evidence that, over the medium term, we were unlikely to achieve our objectives” under current circumstances, he said.

“In particular, if we were moving away from, rather than towards, our goals for both full employment and inflation, the purchase of government securities would be on the agenda of the board,” he said. “In this world, I would hope other public options were also on the country’s agenda,” he added, a thinly veiled reference to fiscal measures.

New Zealand Economic News

Business confidence rebounded in November and “it appears the vibe is changing”, says ANZ chief economist Sharon Zollner.

The latest ANZ Business Outlook Survey is much stronger across the board, offering further signs that the current economic slowdown may be reaching its trough.

Headline business confidence jumped 16 points to a net 26 percent of respondents reporting that they expect general business conditions to deteriorate in the year ahead.

“We (ANZ) continue to expect growth in the New Zealand economy to trough shortly and increase – albeit gradually – from here,” Zollner says.

“Growth bottoming out around 2 percent would be a pretty good outcome. Firms have clearly been deeply concerned about the outlook, not without cause, and this has dampened investment and employment this year.”

“But it appears that the vibe is changing to ‘getting on with it’. Good stuff.”

This article was originally posted on FX Empire