The Australian and New Zealand Dollars finished lower last week with the latter feeling the brunt of the selling pressure. The direction of both currencies was primarily driven by surprise economic news with little reaction to mixed-to-bad economic data from China, their major trading partner. Increased demand for risky assets due to optimism over the flattening of the coronavirus curve, and the reopening of the economy in several major countries including the United States, underpinned the currencies.

Last week, the AUD/USD settled at .6363, down 0.0021 or -0.33%. Meanwhile, the NZD/USD finished at .6034, down 0.0094 or -1.54%.

Australian Dollar

The Australian Dollar closed lower last week, but surprisingly finished higher three out of five trading sessions. Most of last week’s loss took place in one trading session.

The week started with the Australian Dollar, which is sensitive to Chinese demand because of the country’s dependence on raw materials exports, rising to more than a one-month high.

Helping to underpin the Aussie was better-than-expected economic data from China, which painted a less gloomy picture than feared following the coronavirus outbreak there.

China’s March exports fell 6.6% from a year earlier, compared with a forecast for a 14% drop, while imports fell by less than 1%, compared with a 9.5% drop predicted by economists.

While Chinese trade data for March provided bullish fodder for Australian Dollar investors by showing an abatement in the rate of decline in imports and exports after severe plunges in January and February, traders showed little reaction to Friday’s report from China which showed the world’s second largest economy shrank 6.8% in the first quarter of 2020 compared to a year earlier. In fact, the Australian Dollar closed higher for the session as investors, cautiously optimistic about the results of a drug trial and President Donald Trump’s plan to reopen the economy, regained some appetite for risk.

In economic news, the Australian Bureau of Statistics (ABS) on Thursday cautioned that data on March employment covered just the first two weeks of the month before measures were taken to contain the spread of COVID-19, the respiratory disease caused by the new coronavirus.

The data showed employment actually rose by 5,900 in March, when analysts had expected a drop of 40,000, while the jobless rate ticked up only slightly to 5.2%. However, the ABS emphasized the survey covered only the period of March 1-14 before entire sectors of the economy were shut to head off the virus. Traders read this news as bearish.

New Zealand Dollar

The New Zealand Dollar collapsed at mid-week after the governor of the Reserve Bank of New Zealand (RBNZ) said that negative interest rates are not off the table in its response to the economic fallout of the coronavirus crisis.

RBNZ cut its official cash rate (OCR) to 0.25% in March in response to the pandemic, and pledged to keep it at that level for at least 12 months.

When asked by a parliamentary committee what other stimulus steps could be taken, Adrian Orr told lawmakers. “At most we are the end of the beginning, around what may need to be done and what we can do.”

Likewise, negative interest rates are not ruled off the table…and there are other direct financing measures,” he added.

Weekly Forecast

This week, traders are likely to finish last week’s blueprint. Increased demand for risk should continue to underpin the Aussie and Kiwi, not because their respective economies are expected to outperform, but because investors will be liquidating safe-haven U.S. Dollar positions.

Any bearish shifts in investor sentiment will send investors scurrying for the safety of the U.S. Dollar, and the Aussie and Kiwi will weaken.

Also this week, the Australian Dollar is likely to be influenced by the Reserve Bank of Australia (RBA) monetary policy minutes and a speech by RBA Governor Philip Lowe. The Aussie is likely to plunge if the possibility of negative interest rates is mentioned by the minutes or in the speech.

In New Zealand, traders will be watching the quarterly CPI data early Monday and likely reacting to investor sentiment the rest of the week. Traders will be looking at the CPI data for any clues that suggest the measures to slow COVID-19 had any influence on prices.

This article was originally posted on FX Empire

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