AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Concerned About Household Debt, Housing Market, Wage Growth

The Australian and New Zealand Dollars are trading lower on Tuesday after giving up earlier gains. On Monday, the Aussie posted a slight gain ahead of the release of the Reserve Bank of Australia minutes. The Kiwi also closed higher in response to strong buying at a technical chart point and position-squaring ahead of the Fed’s interest rate decision on Wednesday and Thursday’s Reserve Bank of New Zealand monetary policy statement.

At 0454 GMT, the AUD/USD is trading .7702, down 0.0015 or -0.19% and the NZD/USD is at .7220, down 0.0023 or -0.32%.

Early Tuesday, the Reserve Bank of Australia (RBA) released the minutes of its March monetary policy meeting. The minutes offered very little new information for traders.

The minutes showed the central bank remains optimistic on the outlook for the global economy, along with non-mining business investment and labor market conditions in Australia. However, it continued to remain “uncertain” about the outlook for household consumption, the largest and most important part of the Australian economy.

It also continued to warn that a higher Australian Dollar “would be expected to result in a slower pick-up in economic activity and inflation than forecast.”

The minutes can be summed up by the changes to several key paragraphs:

“The improvement in overall conditions had not yet translated into a definitive pick-up in wages growth, which remained low. Forward-looking indicators suggested that spare capacity in the labor market would continue to decline gradually over 2018 and, as a consequence, wages growth was expected to rise gradually.”

“Household debt levels remained high, which contributed to the uncertainty surrounding the outlook for consumption growth. Members agreed that household balance sheets still warranted careful monitoring.”

“Further progress on these goals was expected over the period ahead, but this process was likely to be gradual.”

In summary, the RBA said it is confident that stronger labor conditions will eventually lead to a gradual lift in wage and inflationary pressures, but there is still some degree of uncertainty as to whether that will take place.

Furthermore, the combination of high household debt, a slowing housing market and weak wage growth, likely means the economy will have trouble growing “a little over 3% over the next two years”.

Therefore, we can conclude the RBA is not in a position to raise rates at this time nor is it willing to adjust current policy settings.