AUD/USD and NZD/USD Fundamental Weekly Forecast – US Stimulus Talk Will Exert Most Influence on Aussie, Kiwi
The Australian and New Zealand dollars rose higher last week as traders ignored the dovish prospects of their respective central banks. Instead, the Aussie and Kiwi were helped by a weaker US dollar, which fell in response to increased demand for riskier assets. The triggers for the recovery of the currencies were the hope for a US economic agreement and the rising expectations of the election of the Democrat Joe Biden as US President.
Last week the AUD / USD was trading at 0.7241, up 0.0077 or + 1.08%, and the NZD / USD closed at 0.6672, up 0.0035 or + 0.52%.
Aussie, kiwi up due to lower demand for safe haven US dollars
AUD / USD and NZD / USD rose last week as expectations grew that Joe Biden would win the US presidency and provide fiscal stimulus after the election.
That notion was borne out by a report from Reuters that said several Wall Street banks are forecasting a stimulus package regardless of which candidate wins, but that if the Democrats also take control of the Senate, a Biden presidency is likely to happen a bigger one. For example, UBS Asset Management assigns a 75% chance of winning Biden.
"Aside from potentially losing the presidency, Republicans may also lose control of the Senate, as the betting odds give Democrats a nearly 70% chance of taking over the Senate," Brown Brothers Harriman strategists said.
On a fiscal stimulus package, the news was two-sided last week as President Trump first abandoned negotiations earlier in the week and then increased his offer to $ 1.8 trillion, almost double the administration's offer on talks that began late summer. Those proposals were firmly rejected as House Democrats and Senate Republicans on Saturday expressed their opposition to Trump's new offer. This complicated a week of already confusing negotiations and clouded hopes of a deal before election day.
The Australian central bank is maintaining its policy
The Reserve Bank of Australia (RBA) announced last Tuesday that it had decided to keep the current policy settings. In a statement announcing the central bank's monetary policy decision, RBA Governor Philip Lowe said, "The Board of Directors continues to consider how additional monetary easing could support jobs as the economy opens further."
Kiwi mixed with aggressive money bets
The kiwi saw two-sided trade last week, breaking for the first time after a reluctant statement by the Reserve Bank of New Zealand (RBNZ) Thursday that it was actively “working” on negative rates.
RBNZ officials "said they were more aggressive with monetary incentives and did too much too early than too little too late," Commonwealth Bank analysts wrote in a note.
Confusing times indeed, with declining interest rate movements likely to cap earnings as demand increased for riskier currencies and a weaker US dollar underpinning the Aussie and Kiwi.
The Reserve Bank of Australia (RBA) is widely expected to cut its policy rate further to 0.1% from a record low of 0.25% at its November meeting, but the likelihood of negative rates was "extremely unlikely".
The Reserve Bank of New Zealand (RBNZ), on the other hand, is likely to cut the official key rate by 75 basis points to -0.5% in April 2021.
The variable for this week will be the US stimulus package, as this story has driven price action in the US dollar and global equity markets.
As of Sunday, the Democrats and Republicans have hit an impasse where the news may not be bullish earlier in the week. This could weigh on demand for both Aussie and kiwi fruit. However, given the volatile situation in Washington, both currencies could rebound if both parties find common ground and move closer to a deal.
If you look at it on a timeline, the stimulus news will have the most immediate impact on the Aussie and Kiwi, followed by the RBA rate cut in early November and the RBNZ move on negative rates in April 2021.
In our economic calendar you will find all economic events of today.
This article was originally published on FX Empire
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