NZD/USD & AUD/USD Fundamental Forecast – RBA’s Less Hawkishness Welcomes Downside Vulnerability

Friday’s session presented a 2-sided performance as the Australian Dollar lost ground against the US Dollar while the New Zealand Dollar showed resilience with a minor gain. Meanwhile, policy divergence between the United States’ hawkish Fed Reserve, more hawkishness by the Reserve Bank of New Zealand, and the Reserve Bank of Australia’s less hawkishness ensured the mixed close.

Friday witnessed the AU-USD settling at 0.6687, dropping 0.19% or 0.0013, while the NZD-USD closed 0.58% up (+0.0037) at 0.6379. Meanwhile, the FXA gained 0.01% (+0.01) to finish at $66.34.

Hawkish Fed Officials Project Increased Borrowing Costs

John Williams of the New York Fed stated that he is not anticipating a recession, but they have to do the necessary to lower inflation to the 2% Federal target. He added that the peak rate might be higher than current forecasts.

San Francisco Fed’s Mary Daly stated that she needs to find out why market players are positive on inflation. She added that might have emerged as markets price an ideal case. Daly suggested that central bankers are positioning financial policy for what remains upward risks to inflation’s outlook.

Daly thinks eleven months of hikes could mend things – and more if needed, with the data determining how long such moves will persist. Moreover, her prediction matched most of her colleagues, expecting a 5.1% rate peak.

Cleveland Federal’s Loretta Mester said (on Friday) she trusts the American central bank will resort to increased interest rates, surpassing predictions by most policymakers this week.

Less Hawkish RBA Increases Rates Modestly

The RBA (Reserve Bank of Australia) increased its benchmark rates on 2 December, executing the anticipated 25 basis point hike. The central bank was among the last to enter global tightening and the first to change to more minor actions. Traders expect policymakers to maintain their stance in the upcoming months, with inflation depicting cooling signs.

More Hawkish RBNZ Executes Surprising Hike

The RBNZ (Reserve Bank of New Zealand) increased rates by 75bp in late November, nearing a 14-year peak of 4.25%. Moreover, it projected more interest rate increases as it battles stubborn inflation. As a result, the bank anticipated a 5.5% cash rate peak in September next year (according to the financial policy statement).

Near-Term Outlook
AUD-USD might weaken further if markets keep pricing more Fed aggressiveness, while NZD-USD steadies to better. Nevertheless, since the upcoming week might see light volume, a volatile 2-side trade won’t be a surprise. Trading volume can remain low in the coming week amid the Christmas holiday.

What are your views about the above content? What should we expect from the Forex markets as central banks prepare for the coming year? You can comment below.

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