The Australian Dollar closed lower for the third week in four and the New Zealand Dollar closed lower after hitting a six-month high the previous week. The catalysts behind the selling pressure were rising U.S. Treasury yields and a hawkish outlook by the U.S. Federal Reserve.
The U.S. Dollar was helped by buoyant Treasury yields which rose to four-year highs. The Greenback was further supported after minutes from the Fed’s January meeting showed policymakers confident in rising inflation.
The minutes also showed voting members, as well as the wider group of policymakers, had upgraded their forecasts for the economic outlook since December.
Traders widely interpreted a slightly more upbeat tone in the minutes of the January 30-31 meeting. They appear to have cemented expectations that the Fed will hike rates under its new chief Jerome Powell next month, and that rates will be hiked on at least another two occasions in 2018.
Contrary to the Fed minutes, the Reserve Bank of Australia minutes released on February 20 indicated policymakers were sanguine about the uptick in the global economy. RBA members also noted that wage growth “was yet to pick up” despite the robust job market and highlighted that household debt remained “elevated.”
New Zealand Dollar
The New Zealand Dollar fell last week against the U.S. Dollar. Softening the blow from the hawkish Fed minutes was upbeat economic data, however. New Zealand PPI Input was up 0.9% and PPI Output was up 1.0% versus forecasts of 0.3% and 0.4%, respectively. Quarterly Retail Sales came in at 1.7% versus a 1.4% estimate. Core Retail Sales were up 1.8% versus a 0.7% forecast.
In Australia this week, investors will get the opportunity to react to the latest report on Private Capital Expenditure. It is expected to come in slightly higher than the previous number. A report on New Zealand ANZ Business Confidence is also scheduled to be released.
Once again the direction of the U.S. Dollar should dictate the tone in the Forex markets this week. We’re expecting volatility due to the slew of U.S. economic data scheduled to be released. The volatility could cause directional price movement, or a choppy, two-sided trade.
Economic data includes Core Durable Goods Orders on Tuesday. It is expected to come in 0.4% higher, below the previously reported 0.7%. Conference Consumer Confidence is expected to improve slightly to 126.2.
Preliminary GDP is forecast at 2.5%, down slightly from 2.6%. Finally, ISM Manufacturing PMI is expected to edge slightly lower to 59.0.
The market moving event this week will be the first congressional testimony by newly appointed Fed Chair Jerome Powell.
Powell will make his first major appearance Tuesday and Thursday, when he testifies on the economy before congressional committees.
The Fed added to the AUD/USD and NZD/USD volatility last week when it released its minutes, and could do it again in the coming week as investors are likely to react to Powell’s views on inflation and his take on the number of expected Fed rate hikes this year.
A hawkish Powell will be bearish for the Aussie and the Kiwi.