AUD/USD and NZD/USD

AUD/USD and NZD/USD Fundamental Daily Forecast – Drop in Treasury Yields Boosting Aussie, Kiwi

After early session weakness, the Australian and New Zealand Dollars are trading higher. The weakening U.S. Dollar is behind the move. Dropping Treasury yields are also underpinning the Aussie and Kiwi. Earlier in the session, dovish Reserve Bank of Australia minutes weighed on the Australian Dollar.

At 0839 GMT, the AUD/USD is trading .7294, unchanged. The NZD/USD is at .6861, up 0.024 or +0.35%.

Early Tuesday, the AUD/USD and NZD/USD struggled early as buyers tried to build on last week’s strong gains. Despite a weaker U.S. Dollar due to concerns over slowing domestic growth, the Aussie and Kiwi were pressured by renewed concerns over the US-China trade dispute. Weaker commodity prices and a move into the safe-haven Japanese Yen also put a lid on prices.

In Australia, traders perceived the Reserve Bank of Australia minutes as dovish. The RBA showed that officials expect to see above-trend growth in 2018 and 2019, supported by historically low interest rates. However, they saw no reason to raise rates over the near-term.

RBA Minutes

The minutes from the RBA monetary policy meeting in early November reinforced expectations that the chances of near-term rate rises are low.

“Taking account of the available information on current economic and financial conditions, as well as the latest forecasts, members assessed that the current stance of monetary policy would continue to support economic growth and allow for further gradual progress to be made in reducing the unemployment rate and returning inflation towards the midpoint of the target,” the RBA said in minutes from its latest monetary policy meeting on November 6.

The RBA also noted that labor conditions had been stronger than expected but wage inflation remained muted.

“Members noted that average real earnings had not increased for six years and that wages growth was a key uncertainty for both future consumption growth and inflation,” according to the minutes.

Finally, the central bank also noted that while the unemployment rate is expected to gradually decline to 4.75 percent by mid-2020 “some leading indicators of labor demand suggested there could be a more pronounced decline in the unemployment rate in the near-term.”

Forecast

The RBA minutes were largely perceived as dovish because policymaker comments about the unemployment rate indicated there is still spare capacity in the system. This means there is no need for the central bank to think about hiking.

In other news, a potential shift in the interest-rate cycle has some traders betting heavily that the Fed will begin to slow the pace of its rate hikes. This could help underpin the AUD/USD and the NZD/USD.

On Wednesday, investors will get the opportunity to react to U.S. data on Building Permits and Housing Starts at 1330 GMT.

Building Permits are forecast to have risen 1.26 million units. Housing Permits are estimated to have risen 1.23 million units.

The housing numbers will be watched closely by traders because of their impact on the economy and future Fed policy. Weak data will likely drive the AUD/USD and the NZD/USD higher because it may reduce the chances of at least three Fed rate hikes next year.

Further selling pressure on U.S. stock indexes could put a cap on gains, however, because of increased safe-haven buying and generally lower demand for higher-yielding assets.

Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.