AUD/USD and NZD/USD Fundamental Weekly Forecast – Traders Will Be Watching Outcome of US-China Trade Talks

The Australian and New Zealand Dollars finished higher last week. Both were driven sharply lower early in the week by a stronger U.S. Dollar before reversing to the upside. Some of the pressure came from spillover selling related to the previous week’s dovish monetary policy statements.

There were also concerns raised over a weakening China economy. However, the currencies did garner some support late in the week on short-covering related to the announcement of renewed trade talks between the United States and China and an easing of the financial turmoil in Turkey.

Last week, the AUD/USD settled at .7317, up 0.0022 or +0.30% and the NZD/USD closed at .6635, up 0.0058 or +0.88%.

In Australia, the jobs report missed expectations in July. Total employment in Australia fell by around 3,900 in July in seasonally adjusted data, missing forecasts for a gain of 15,000.

Despite the drop in the headline number, the unemployment rate edged to the lowest level since 2012, due to a decline in the labor force participation rate.

The mixed report should not encourage the Reserve Bank of Australia to change policy. It’s still not likely to make a move until late 2019 or 2020. While the report shows that the underlying health of Australia’s labor market is still strong, a return to higher wage growth still looks a long way off.

In New Zealand, the Kiwi was supported by Statistics New Zealand, which reported that the country’s Producer Price Index (PPI) reached 1.0% in the June quarter, beating market forecasts of a 0.2% rise. In the previous quarter, producer prices rose 0.6% in New Zealand.

Rising oil prices were the main driver of the higher PPI reading, as business paid 5.5% more for gasoline and 9.8% more for diesel. The rising fuel prices split over to other industries such as road transport, which saw an increase in input prices of 2%.

Forecast

The Aussie and Kiwi moved higher off their multi-year lows late in the week. Profit taking following a sell-off in risk currencies amid deteriorating risk sentiment helped underpin the Forex pairs. With the major fundamentals still bearish, any gains are likely to be limited this week. Nonetheless, improved risk appetite in reaction to stabilization in Turkey and a positive outcome from the trade talks between the U.S. and China, could underpin prices at times.

The key events in Australia this week are a speech from RBA Governor Philip Lowe and the RBA Monetary Policy Meeting Minutes. New Zealand is set to release its latest data on Retail Sales.

AUD/USD and NZD/USD traders will also get the opportunity to react to U.S. economic data that could fuel a reaction in the dollar. This includes Existing Home Sales, Durable Goods reports and the release of the Federal Open Market Committee meeting minutes on Wednesday.

Global central bankers will be at the forefront this week also with the start of the Jackson Hole Symposium on Thursday. Investors will be looking for comments on inflation, interest rates and the threat of a global recession due to the numerous trade disputes taking place at this time. Of particular interest could be the state of the emerging markets. The central banks could also talk about stock market volatility and the general unrest in the global economy led by an economic collapse in Venezuela and the currency collapse in Turkey.