AUD/USD and NZD/USD Fundamental Weekly Forecast – Conditions Going to Get Worse Before They Get Better
The Australian and New Zealand Dollars finished sharply lower last week amid renewed demand for the highly liquid U.S. Dollar.
Australian Dollar
The Australian Dollar tumbled last week with most of the selling fueled by demand for U.S. Dollars. The economic data was mostly better than expected, while the Reserve Bank of Australia (RBA) monetary policy meeting minutes offered little fresh news.
Last week, the AUD/USD settled at .5995, down 0.0172 or -2.79%.
On the plus side, Private Sector Credit, the AIG Manufacturing Index, Building Approvals and Final Retail Sales all came in better-than-forecast. However, there were dips in Commodity Prices and the AIG Construction Index.
Australia’s central bank was worried about the potential for a “very material contraction” in economic activity when it unveiled quantitative easing in an emergency meeting last month, minutes released on Wednesday showed.
New Zealand Dollar
The New Zealand Dollar’s plunge was fueled by demand for the U.S. Dollar and a steep drop in ANZ Business Confidence. Last week, the NZD/USD settled at .5859, down 0.0184 or -3.05%.
According to ANZ Research, headline business confidence plummeted 45 points to -64 in March, close to a record low. A net 27% of firms expect weaker activity for their own business (down 39), the lowest read ever (the survey began in 1988).
Survey responses received in the second half of the month (about a third of all responses) were more negative.
Retail Sector own activity collapsed 56 points from +15 to -41. Services and construction also plummeted by more than 40 points.
Expected profitability, investment and employment intentions fell sharply. A net 23% of firms intend on laying off staff, including a net 35% of retailers.
Inflation expectations dropped another 38bp to 1.51%, the lowest in 3 years.
Weekly Forecast
With the RBA reluctant to take the cash rate into negative territory and the most recent large fiscal package, many analysts expect the RBA to sit on its hands for a while. Furthermore, economists are saying the key for policy now is the extent of RBA’s bond buying program.
The outlook for the New Zealand economy is pretty grim. The plunge in the ANZ business confidence survey indicates the economy is headed toward a severe recession.
Given the massive fiscal and policy moves by their respective governments and central banks , there is likely to be enough stimulus in the system when the coronavirus pandemic ends, but no officials are able to tell businesses when that will be. This is likely to continue to rattle business confidence, which likely means conditions are going to get worse before they get better.
This article was originally posted on FX Empire
