The Australian and New Zealand Dollars were pressured all week by rising U.S. interest rates, solid U.S. economic data and lower demand for risky assets. With the Fed raising rates for a third time this year and signaling more to come, the spread between U.S. interest rates and Australian and New Zealand interest rates continued widen, making the U.S. Dollar a more attractive investment.
In other news, the Reserve Bank of New Zealand (RBNZ) kept its official cash rate at a record low of 1.75 percent. RBNZ Governor Adrian Orr said while there were welcome early signs inflation was rising, downside risks to growth remained, particularly “trade tensions” between some major global economies.
On September 26, the U.S. Federal Reserve increased the target for the bank’s benchmark by 0.25%, to a range of 2%-2.25%. A majority of Federal Open Market Committee members also said they expect another rise before the end of the year. This was also the bank’s eighth rate hike since 2015, continuing its policy of gradual rate hikes.
FOMC members led by Chairman Jerome Powell said the economy is strong enough that aggressive stimulus is no longer necessary. This confidence was shown by the Fed ending its description of its policy as “accommodative”.
In economic news, Final Q2 US. GDP rose 4.2%. Core Durable Goods Orders came in at 0.1%. Durable Goods Orders rose 4.5%. The Core PCE Price Index was flat, but Personal Spending rose 0.3%. The Conference Board’s Consumer Confidence hit an 18-year high at 138.4. University of Michigan’s Consumer Sentiment, however, came in slightly below expectations at 100.1.
With the exception of the NASDAQ Composite, the major U.S. stock indexes finished lower last week. This helped drive down demand for the risky Aussie and Kiwi. Furthermore, problems with the Italian budget drove the Euro lower. This also drove down demand for higher-yielding currencies.
Economic news that could influence the U.S. Dollar and the Aussie and Kiwi this week are U.S. ISM Manufacturing PMI, ISM Non-Manufacturing PMI, and the Balance of Trade.
Additionally, investors will get the opportunity to react to the September Non-Farm Payrolls report. The headline number is expected to show the economy added 185K jobs last month. Average Hourly Earnings are expected to have risen 0.3% and the Unemployment Rate is expected to dip to 3.8%.
The dollar will also continue to be influenced by Treasury yields and worries over Italy.
Data is light out of New Zealand, but in Australia, investors will be watching the latest Reserve Bank of Australia interest rate decision. The RBA is widely expected to leave rates unchanged at 1.50 percent.
The other major report is Balance of Trade. It is expected to come in at A$1.4 Billion, slightly below the last read of A$1.551 Billion.
The economic data could cause volatile short-term swings, however, the dominant bearish trend will continue to be controlled by U.S. Treasury yields and demand for risky assets.