Weekly Fundamental Forecast AUD / USD and NZD / USD – Investors Bet RBA and RBNZ to Tighten Before Fed

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The Australian and New Zealand dollars ended higher last week as investors continued to adjust their positions after the sharp drop the week before. Price action suggests investors believe the sharp breakout was overdone and likely fueled by sell stops and long sell-offs rather than aggressive short selling.

Traders have also likely increased bets on the central bank that would be the first to raise interest rates. Last week’s comment from Federal Reserve Chairman Jerome Powell likely helped the rally as it downplayed the possibility of an anticipated Fed rate hike. Several Fed members disagreed with Powell’s assessment of inflation and the timing of the next rate hike, but Australian and Kiwi traders should react in moderation to the remarks.

AUD / USD last week stood at 0.7593, up 0.0114 or + 1.52% and NZD / USD closed at 0.77070, up 0.0139 or + 2.01%.

Australian and Kiwi traders react positively to Powell’s Dovish torment over inflation and interest rates

Early last week, Federal Reserve Chairman Jerome Powell said in testimony prepared for a congressional hearing that the U.S. economy continues to show “sustained improvement” in the impact of the coronavirus pandemic and ongoing gains in the labor market, but inflation has “risen dramatically in recent months. . “

Powell did not go into detail in his prepared remarks on current monetary policy, nor on the possibility that the US central bank may have to accelerate its plans to withdraw some support to the economy due to the faster rise. prices.

In his remarks, Powell said he actually considered the current surge in inflation likely to fade.

“We will not raise interest rates preemptively because we fear a possible outbreak of inflation. We will wait for evidence of actual inflation or other imbalances, ”Powell said during a hearing before a House of Representatives panel.

New Zealand’s economy continues to improve

New Zealand’s trade balance reached NZ $ 469 million last month, well above the estimate of NZ $ 205 million, according to Statistics New Zealand. That figure was also up from the revised upward surplus of NZ $ 414 million in April (originally NZ $ 388 million).

Weekly forecast

Looking ahead to this week, the focus will be on Friday’s report on non-farm wages in the United States. With inflation likely to peak shortly, the Fed would like to see more improvements in the US labor market as it hopes to eventually recoup all the jobs lost during the pandemic.

The labor market is also a major concern in Australia. Absorbing slack labor market capacity and achieving full employment are important national priorities, a senior Australian central bank official said on Wednesday, reiterating the bank’s commitment to supportive monetary policy.

In the latest report, the Australian labor market has beaten all expectations, with the unemployment rate slipping to pre-pandemic levels of 5.1%. The RBA estimates that the rate will likely need to be around 4% to generate pressure on wages and inflation.

Australian traders are also eagerly awaiting the RBA’s policy meeting on July 6, where it is expected to announce a reduction in bond purchases.

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