AUD/USD and NZD/USD Fundamental Daily Forecast – Strong Australian Trade Balance Supports Another 50bp Rate Hike


The Australian and New Zealand dollars are slightly higher on Thursday as global risk improved slightly after US data released on Wednesday suggested the economy may be able to avoid a recession. The news also means the US Federal Reserve may be given the green light to continue making aggressive rate hikes.

The Fed won’t have to make an interest rate decision until September 21, but it helps Aussie and Kiwi traders know what to think, as the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) are on similar paths.

The three major central banks are trying to find a way to break the searing inflation with the least possible damage to their respective economies. All three also face strong labor markets, so it’s possible to stay aggressive with rate hikes. Right now, it looks like central bank policymakers are viewing 50 basis point rate hikes as the “new normal” with 75 basis point rate hikes seen as “aggressive”.

At 05:25 GMT, AUD/USD is trading at 0.6964, up 0.0014 or +0.20% and NZD/USD is at 0.6298, up 0.0024 or +0.38 %. On Wednesday, the Invesco CurrencyShares Australian Dollar Trust (FXA) ETF settled at $68.79, up $0.25 or +0.37%.

No respite in RBA, RBNZ and Fed rate hikes

The RBA met on Tuesday, the RBNZ is not expected to meet until August 17, and the Fed’s next policy decision will be in September. The three central banks are on a mission to raise rates based on the data. So we expect to see a lot of near-term volatility as economic reports come out.

Traders will continue to interpret bearish reports to mean that the central bank may be taking the reins off aggressive rate hikes. Bullish reports will increase the chances of aggressive rate hikes. I don’t see a neutral at the moment as inflation is still high and there is not enough data to show that their respective economies are in recession. This means that interest rates will increase by 50 or 75 basis points in the short term.

Trade balance bullish Australia News

Today’s Australian Trade Balance report helps support further rate hikes from the RBA. It showed the trade surplus hit a record A$17.7 billion ($12.30 billion) in June, led by gains in gold and metals exports.

This took the rolling 12-month surplus to A$137 billion, a net inflow of cash to the Aussie and a boon to mining profits and government tax revenues.

“These numbers are at a surprisingly high level and are supported by rising export volumes and prices,” said Belinda Allen, senior economist at the CBA.

“The trade surplus for the quarter was a staggering A$45 billion, compared to A$29 billion in the first quarter, and we expect net exports to add around 0.8% to GDP growth in the second trimester.”

The Gross Domestic Product report is due out on September 7 and looks quite robust.


Comments are closed.