AUD fundamental is improving significant

The Australian and New Zealand Dollars took big hits last week as bearish traders increased their bets for a rate cut by the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand. The catalyst for most of the selling pressure was a rise in the Australian unemployment rate. Strengthening U.S. economic data and increased concerns over U.S.-China trade relations also pressured the Aussie and the Kiwi.

Weekly Forecast
Over the week-end, Australia’s Prime Minister Scott Morrison, swept his Conservative-Liberal coalition to victory. He also vowed to get straight back to work after a shock win saw him re-elected for three more years. According to Bloomberg, “The Australian Dollar is set to strengthen against the greenback after the nation’s center-right government clung to power in a surprise election victory at the weekend.”

The news is potentially bullish because it takes the Labor Party’s tax proposals off the table. This should give some relief to the housing market. Furthermore, with the incumbent government being viewed as stronger economic managers, business sentiment is expected to improve, according to Andrew Ticehurst, Sydney-based rate strategist at Nomura Holding Inc. “It’s a net positive for the equity market and the Australian Dollar will likely bounce,” he added.

Mid to Longer-Term Outlook
Over the short-run, the AUD/USD could get a boost from the election results, but gains are likely to be limited and prices could fall further because of the weakening economy and the expected rate cut. But let’s assume that a rate cut has been nearly priced into the market. Traders just aren’t sure if it will come in June, July or August.

In its recent monetary policy statements, the RBA has said that a lack of improvement in the labor market would warrant a rate cut, so last week’s data is likely to be of great concern to them. Traders are now placing a 50/50 chance of a cut in June.

In other news, investors will be keeping an eye on U.S.-China trade relations, which apparently came to a standstill on Friday, according reports. Reports said the two economic powerhouses basically shut down trade talks after the U.S. basically hit Hauwei with new sanctions.

Read more:

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