AUD/USD and NZD/USD Fundamental Weekly Forecast – RBA Rate Decision, Financial Services Review on Tap

The Australian and New Zealand Dollars finished mixed during the holiday-shortened week on relatively light volume. The price action essentially mimicked the movement in higher risk assets, Treasury yields and the U.S. Dollar. Investors seemed reluctant to commit to either side of the market in a big way ahead of Fridays U.S. Non-Farm Payrolls report.

Last week, the AUD/USD settled at .7614, down 0.0027 or -0.36% and NZD/USD finished at .7033, up 0.0034 or +0.49%.

Australian Dollar

There were several key reports last week including Building Approvals, Retail Sales and Trade Balance.

Detached home approvals have surged by almost 70% since the federal governments HomeBuilder grant was introduced in June, and the scheme combined with low interest rates and housing market momentum to push approvals to their highest level in February.

New data from the Australian Bureau of Statistics showed a 21.6% increase in overall approvals in February to 19,422. That followed a 19.4% fall in January after a rush in December to secure the full benefits of its HomeBuilder packages first iteration.

Australian data was a mixed bag with retail sales falling a smaller-than-expected 0.9% in February, while the trade surplus missed forecasts at $$7.5 billion ($5.69 billion) because of a surprisingly sharp rise in imports.

Much more emphatic were figures showing home prices rose at the fastest pace in three decades in March, delivering a windfall to consumer wealth and confidence.

Australias monthly trade surplus narrowed from a revised record high of A$9.616 billion in January to A$7.529 billion February. Exports weakened on the month while imports rebounded strongly.

In seasonally adjusted terms, the value of exports fell 1.1 percent on the month in February after a revised gain of 5.0 percent in January. Seasonally adjusted imports rose 5.2 percent on the month in February, strengthening from a revised drop of 2.0 percent in January.

New Zealand business sentiment fell in March as the economy struggled from the lack of tourists and the unsustainable bounce in retail spending started to dissipate, an ANZ Bank Survey showed on March 31.

The surveys headline measure showed a net 4.1% of respondents expected the economy to deteriorate over the year ahead, versus a 7.0% optimism level in the previous poll in February.

A net 16.6% of respondents expected their own businesses to grow in the next 12 months, versus 21.3% last month.

Weekly Forecast

With most of the major players on Easter holiday until Tuesday, we could see a muted reaction to last Fridays robust U.S. Non-Farm Payrolls report.

The key event this week is Tuesdays Reserve Bank of Australia (RBA) interest rate decision and Rate Statement. On Friday, the RBA will follow-up with its Financial Services Review.

The recent surge in Australian economic activity has done little to shake the RBAs commitment to super-loose policy, which is focused on driving unemployment down to levels that will lift wage growth and inflation.

Therefore, we expect the RBA to remain dovish, with rising housing prices and growth in new housing finance, having no impact on policy.

Look for the RBA to keep its cash rate and 3-year yield targets at 0.10% in 2021 and 2022, and to extend its QE program beyond October 2021.