AUD/USD and NZD/USD Fundamental Weekly Forecast – Will RBNZ Policymakers Discuss Negative Rates?

Risk sentiment, government reports, a speech by Fed Chair Jerome Powell and central bank activity will drive the price action in the Australian and New Zealand Dollars this week.

In the U.S., the key reports are consumer inflation and retail sales. Federal Reserve Chairman Jerome Powell is also scheduled to deliver a speech. The economic data may not move the currencies much since traders are looking forward, not backward. However, the speech by Powell could be a market moving event since he may offer his outlook for the economy.

Last week, the AUD/USD settled at .6421, up 0.0024 or +0.38% and the NZD/USD closed at .6061, up 0.0042 or +0.70%.

Reports and Powell’s Speech Could Drive the US Dollar

Economists expect the U.S. consumer inflation report for April to show its smallest annual gain in nearly five years.

The Labor Department’s consumer price index (CPI) is projected to show an annual loss of 0.7% for April. Consumer prices fell 0.4% from February to March, the largest drop in five years, reflecting the downward pressure that the coronavirus pandemic is exerting on the cost of gasoline, airfares, hotel rooms and other goods and services. Core CPI is expected to come in at -0.2%. Last month it fell 0.1%.

Retail sales plunged 8.7% in March. With more than 60% of U.S. retailers temporarily shuttered since March by government ordered shutdowns, economists expect the slide accelerated since then. They predict retail sales sank 11% in April. Core Retail Sales are expected to come in at -8.0%. In March, the report showed a 4.5% decline.

Powell speaks via webcast hosted by the Peterson Institute for International Economics at 13:00 GMT. He is expected to speak about the current issues facing the U.S. economy.

New Zealand – Central Bank Activity on Tap

The Reserve Bank of New Zealand (RBNZ) is expected to leave its benchmark rate at 0.25%. Policymakers may mention that they expect the economy to contract this quarter, but that if efforts to control the coronavirus outbreak are successful then the economy may recover late in the second half of the year.

Policymakers could also mention that they discussed the possibility of negative rates. This would be a negative for the currency.

The government is also expected to release its annual budget. In the budget, they may offer economic projections for the rest of the year and what kind of recovery they expect to see. If they are like Fed policymakers then they are likely to offer various scenarios because no one is really certain what the recovery will look like.

Australia – Jobs Report Will Reveal Real Damage to Economy

Out of Australia, the Employment Change is expected to show 550K jobs were lost last month. The Unemployment Rate is forecast to rise from 5.2% to 8.3%.

Like U.S. investors did on Friday with the release of the disastrous U.S. Non-Farm Payrolls report, Australian Dollar traders may show no reaction to these numbers unless they come in better than expected.

Investors expect these numbers to improve now that the government is beginning to loosen up restrictions that have crippled the economy for months.

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.