AUD/USD and NZD/USD Fundamental Daily Forecast – No Surprise; RBNZ Lowers OCR 25 Basis Points

The Australian and New Zealand Dollars are trading mixed on Wednesday with the price action in both currencies being controlled by central bank activity. On Tuesday, the Reserve Bank of Australia (RBA) held interest rates unchanged while raising the odds of a potential rate cut later in the year. On Wednesday, the Reserve Bank of New Zealand (RBNZ) cut its benchmark interest rate and placed the chances of another rate cut later this year at 50/50.

At 06:34 GMT, the AUD/USD is trading .7023, up 0.0013 or +0.18% and the NZD/USD is at .6591, down 0.0009 or -0.14%.

Australian Dollar

On Tuesday, the RBA board decided to keep rates on hold at 1.5% for the 30th monthly meeting in a row. Governor Philip Lowe also signaled that “spare capacity” in the labor market trumped any concerns about slowing growth.

The RBA also said that inflation might be weak but unemployment is still declining and that was the key. The biggest surprise in the upbeat statement was that the bank’s core scenario of strong growth remains. The central bank trimmed just 0.25% from its forecast of 3% growth this year.

The RBA also noted that the Australian Dollar “is at the low end of its narrow range of recent times” suggesting that the combination of the recently weaker currency and strong commodity prices is seen as a positive for the Australian economy.

New Zealand Dollar

The RBNZ cut its benchmark interest rate for the first time in two-and –a-half years on Wednesday and signaled a 50-50 chance of another easing, triggering a steep break in the New Zealand Dollar. However, since the news was largely priced into the market, the currency rebounded to nearly unchanged.

RBNZ policymakers lowered the official cash rate (OCR) by 25 basis points to an all-time low of 1.50 percent, as expected, after switching in March to an explicitly dovish footing on weaker domestic activity and employment headwinds. A committee of internal RBNZ officials reached a consensus decision on Wednesday to cut the OCR.

According to Reuters, the RBNZ fell short of providing explicit guidance on future moves but said “a lower path for the OCR over the projection period was appropriate.”

The RBNZ’s forecast horizon extends through to June 2022. Rates are seen at 1.36 percent in September and December 2020, implying a more than 50 percent chance of another cut. “The lower path…is consistent with both inflation and employment remaining near the Committee’s objectives.”

The RBNZ also said the country’s employment was near its “maximum sustainable level” but the outlook was more subdued with capacity pressure expected to ease slightly this year. “Consequently, inflationary pressure is projected to rise only slowly,” it added.

Daily Forecast

We’re looking at the possibility of a two-sided trade over the next few days as investors adjust positions to the central bank news.

Looking down the road, the RBA will likely be forced to cut rates next month, however, there are some concerns that the upcoming elections may encourage policy makers to push the cut into perhaps August.

As far as the RBNZ is concerned, another rate cut is likely to remain in play. The next move is likely to be data dependent and could take place in August. However, some economists fell the risks are skewed for a move later in the year.

According to ASB chief economist Nick Tuffley, “The RBNZ’s current OCR outlook suggests a measured assessment before a further cut rather than a sense of urgency.”

Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.