AUD / USD and NZD / USD Daily Fundamental Forecasts – Impact of Lockdowns Highlighted As Australian Retail Sales Crash
The Australian and New Zealand dollars traded mixed on Wednesday, with the Kiwi posting a modest gain and the Aussie recouping its earlier losses. The New Zealand dollar rebounds after hitting its lowest level since November 19 in the previous session. Meanwhile, the Australian dollar is trying to rebound after hitting its lowest price since November 24 earlier in the session.
At 09:22 GMT, the AUD / USD is trading at 0.7315, down 0.0015 or -0.20% and the NZD / USD is at 0.6924, up 0.0005 or +0, 07%.
Basically, the inexorable spread of the Delta variant shut down more of the Australian economy while undermining risk sentiment globally. Technically, traders say a breakthrough in long-term support levels has encouraged black box short selling and trend-following algorithmic funds.
Technical factors also drove the New Zealand dollar to a multi-month low on Tuesday, offsetting the recent uptrend fueled by investors’ bets on a rate hike earlier than expected by the Reserve Bank of New Zealand (RBNZ ).
Richard Franulovich, Head of FX Strategy at Westpac summed up the price action as follows: an extension to 0.7200 / 25 over the next few weeks.
New lockdowns are already impacting Australia’s economy
The disastrous impact of the lockdowns was underscored on Wednesday by data showing retail sales fell 1.8% in June, three times the drop expected by traders.
Reuters said an even worse outcome was expected this month as more than half of the population was now locked up, fueling speculation that the Reserve Bank of Australia (RBA) would have to reconsider its plan to cut taxes. bond purchases from September.
Traders adjust odds of RBNZ rate hike in August
The main reason for the weakness of the New Zealand dollar is that traders are adjusting the odds of an RBNZ rate hike in August. According to day-to-day index swaps, the spread of the Delta variant around the world had seen the market reduce the odds of the RBNZ rising in August to 62%, from around 90% last week.
“The NZD is very sensitive to changes in the outlook for global growth,” CBA analysts noted.
“The risk is that the downward revaluation of the global recovery will continue to alter market expectations for the RBNZ rate hikes, pushing the NZD / USD below our expectations.”
Technical factors helped push AUD / USD and NZD / USD to multi-month lows, and technical factors could help trigger a short-term hedging rally due to extremely oversold conditions. However, this is only a guess, not a sure thing as bearish fundamentals are causing the selling pressure.
Without a support base in place in the Aussie or Kiwi, we cannot yet call a bottom. Additionally, until fears of a COVID breakout subside, traders will likely be in “sell the rally” mode.