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AUD/USD and NZD/USD Fundamental Forecast – October 31, 2016

Both the Australian and New Zealand Dollars were pressured early in the session on Friday due to economic news, but by the end of the day, the main driver of the price action into the close was a surprise news event. The AUD/USD closed at .7594, up 0.0005 or +0.07%.

The Aussie and Kiwi fell early on Friday in reaction to better-than-expected U.S. economic news. According to the Commerce Department, Gross Domestic Product for the third quarter increased at a 2.9 percent annual rate. This was the strongest growth rate since the third quarter of 2014. The government also revised upward the second quarter estimate from 1.2 percent to 1.4 percent.

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After the initial break to the downside, the AUD/USD and NZD/USD began to rebound as the U.S. Dollar started to give back some of its gains. This move was in reaction to the GDP report that showed a deceleration in U.S. consumer spending. The new report showed consumer spending increased at a 2.1 percent rate versus last quarter’s 4.3 percent pace.

So essentially, the headline number was bullish for the dollar, but the consumer spending component of the GDP report was bearish. However, this is probably not enough to derail the Fed from raising rates in December.

The Aussie and the Kiwi surged against the U.S. Dollar into the close as the Greenback plunged in reaction to a report that the U.S. Federal Bureau of Investigation had opened up an investigation into Democratic Presidential candidate Hillary Clinton’s emails.

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Forecast

Early in the session on Monday, investors are likely to react to the FBI/Clinton probe since this was the main driver of the price action into the close on Friday. If this investigation turns into a big deal then look for the U.S. Dollar to continue to weaken. Traders are probably waiting to see how voters react to this news, making political polls very important.

Look for the Aussie and Kiwi to strengthen if the polls show Clinton losing votes and Trump gaining voters.

In New Zealand, investors will get the opportunity to react to the latest Building Consents report and the ANZ Business Confidence report.

In Australia, the key reports are the MI Inflation Gauge and the Private Sector Credit.

The U.S. is scheduled to report on Core PCE Price Index, Personal Spending and Personal Income. The former is expected to come in at 0.5%, the latter at 0.3%. The Fed watches these two reports so we could see more than a knew jerk reaction to them.

Trading could be limited and volume low on Monday unless the FBI/Clinton news becomes a bigger issue. Late Monday/early Tuesday the Reserve Bank of Australia will issue its decision on interest rates and its rate statement.

The Fed will begin its two-day meeting on Tuesday.

I think traders are going to be watching and reacting to anything regarding the FBI/Clinton probe. We know very little at this time so our best bet for new information will be the polls. If the polls show Clinton losing support and Trump gaining support then the AUD/USD and NZD/USD are likely to rally.

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.