AUD/USD and NZD/USD Fundamental Weekly Forecast – Surging Prices May Raise Central Bank Concerns

The Australian and New Zealand Dollars finished higher last week with both currencies supported by increased demand for higher risk assets on the back of rising optimism tied to the start of vaccinations in the U.K. and the looming start in the United States. Both currencies also garnered support for their respective country’s stellar response to the COVID-19 pandemic.

Last week, the AUD/USD settled at .7535, up 0.0107 or 1.44% and the NZD/USD finished at .7089, up 0.0050 or +0.71%.

Helping to cap gains, however, were concerns over Brexit and the impasse in the U.S. Congress over a fresh round of coronavirus-stimulus.

Both currencies have rallied in recent weeks as investors chose to focus on the future prospects of a COVID-19 vaccine and the ensuing global rally in risk assets, rather than the worldwide resurgence in infections.

Australian Economic News

Australian job advertisements jumped for a seventh straight month in November as the second-most populous state of Victoria emerged out of its long coronavirus-induced lockdown.

Last week’s figures from Australia and New Zealand Banking Group ANZ showed total job ads grew 13.9% in November from October, when they rose an upwardly revised 11.9%.

ANZ Job Ads are on track to match or even exceed pre-COVID levels by year-end,” ANZ said in a statement. “This suggests that the rebound in national employment could continue into early-2021 at least, although the lagged recovery in full-time employment remains a concern.”

A measure of Australian consumer sentiment climbed for the fourth straight month in December to a 10-year high as the country further relaxed virus restrictions and states opened their borders to each other.

The Westpac-Melbourne Institute index of consumer sentiment released on Wednesday climbed 4.1% in December from November, when it had risen 2.5%.

“After only eight months the evidence seems clear that sentiment has fully recovered from the COVID recession,” said Westpac Chief Economist Bill Evans.

The RBA Bulletin said some Australians face a prolonged period of unemployment as a result of the COVID-19 pandemic, central bank analysis warned.

It said while the economic outlook is highly uncertain, it is likely that the unemployment rate will remain elevated for a number of years.

“As such, some unemployed people are facing the prospect of a prolonged period of unemployment,” research in the central bank’s monthly bulletin said.

New Zealand Economic News

In New Zealand, the focus last week was on the manufacturing sector. Manufacturing Sales excelled in the third quarter, with a gain of 10.0%. This follows a bleak reading of -11.0% in the second quarter. The BusinessNZ Manufacturing Index improved to 55.3 in November, which was well into expansionary territory.

Weekly Forecast

There is no doubt that Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) policymakers are pleased with the economic rebound in both countries, but they are also likely very concerned about the sharp appreciation in the Aussie and Kiwi and its potential impact on exports. Therefore, at their next monetary policy meetings, they may address this issue.

Perhaps, we’ll get a response from the RBA and RBNZ following the release of the New Zealand GDP and the Australian Employment Change and Unemployment Rate reports.

In the week ahead, the focus will be on U.S. stimulus as its impact on risk sentiment. The stronger the risk sentiment, the more powerful demand for riskier currencies.

Aussie and Kiwi traders will also have the opportunity to react to the latest interest rate and monetary policy decisions from the Fed. A dovish Fed could drive up demand for risky assets and weaken the U.S. Dollar, which would be beneficial for the Australian and New Zealand Dollars.

The U.S. Federal Reserve meets on December 15-16. Policymakers are going to spend a lot of time discussing the downside risks to the economy. The Fed essentially has four key questions to deal with.

With risks mounting, how will officials adjust their asset purchase plans?

How will the Fed respond to rising downside risks?

How will the Summary of Economic Projections look with potential positive signs of a vaccine?

How will markets react when special Fed lending programs officially shut down?

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.