AUD/USD and NZD/USD Fundamental Weekly Forecast – Firmer as Countries Emerge from Successful Lockdowns

The Australian and New Zealand Dollars finished mixed last week with the Aussie settling just under its two week high and with enough strength to perhaps break out to the upside. The currency was helped by better than expected Retail Sales data and a recovery in crude oil prices after a weak start to the week had both the Aussie and Kiwi under pressure.

For the week, the AUD/USD settled at .6396, up 0.0033 or +0.52% and the NZD/USD finished at .6019, down 0.0015 or -0.25%.

Plunge in Crude Oil Weighs on Commodity Currencies

Early last week, U.S. crude oil traded at negative prices for the first time in history, with demand for energy collapsing amid the coronavirus pandemic.

The benchmark price for U.S. crude plummeted to negative $35.63 a barrel as traders sought to avoid owning crude with nowhere to store it. Additionally, demand for oil has collapsed so much that facilities for storing crude are nearly full.

The steep drop in crude oil took down commodity-linked currencies all around the world.

Reserve Bank of Australia Monetary Policy Minutes

The minutes from the RBA’s monthly meeting on April 7 showed board members agreed income support measures such as the federal government’s JobKeeper program would help cushion the COVID-19 blow for households, although business conditions and investment was deteriorating.

The RBA opted not to change the rate after two coronavirus-inspired cuts in March reduced the figure to a record low 0.25 percent – where it is expected to remain for some time.

The bank also reaffirmed a 25 basis-point yield target on three-year Australian government bonds after it introduced quantitative easing measures at a March 18 emergency meeting.

RBA’s Dr. Lowe:  Moving Too Fast May Worsen Virus Toll

RBA Governor Philip Lowe said easing COVID-19 restrictions will undoubtedly help the economy though moving too quickly could entrench an already disastrous decay in jobs, wages, inflation, and growth.

RBA policymakers said the economy could start to bounce back in the September quarter as government begins to ease coronavirus restrictions towards the middle of the year.

However, if the restrictions stay in play longer, or they have to be reimposed due to an unexpected increase in coronavirus cases, the recovery will be delayed and interrupted.

“In that case, the loss of incomes and jobs would be even more pronounced,” Dr. Lowe said in a speech in Sydney on Tuesday.

New Zealand Dollar Pressured by Central Bank Activity

The New Zealand Dollar was pressured last week on concerns the Reserve Bank of New Zealand (RBNZ) may start buying bonds directly from the government and on the outlook for dairy prices.

Reserve Bank governor Adrian Orr had been talking about buying bonds directly from the government, rather than through the secondary market, as a money printing mechanism, “which is not the way central banks usually do it,” said Pat Gilligan, a director at Forex.

Traders are now looking for more QE from the RBNZ, which could come in more than twice a percentage of GDP in government bonds. This news is NZ dollar negative. Also weighing on prices was a negative outlook for dairy prices after a poor Global Dairy Trade auction.

Weekly Forecast

Firmer oil prices this week could help underpin the commodity-linked Aussie and Kiwi, but traders should be cautious about relying on that market as a bullish price driver due to its volatility and instability.

Aussie traders are going to monitor the quarterly Consumer Inflation numbers that are expected to come in at 0.2%, down significantly from the previous 0.7% reading. Trimmed Mean CPI is also expected to dip to 0.3% from 0.4%.

China’s Manufacturing PMI data on Thursday could also be a market moving event.

The wildcard this week will be decisions from the Australian and New Zealand governments regarding the easing of COVID-19 restrictions and the reopening of their respective economies.

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.