The Australian and New Zealand Dollars are trading lower early Thursday. The Aussie is showing no reaction to positive economic data. The Kiwi followed through to the upside, following Wednesday’s potentially bullish chart pattern, however, the buying wasn’t strong enough to sustain the gains.
The Australian Dollar is trading slightly above its lowest level since May 2016, which was reached on Wednesday. The market plunged to this level despite strong gross domestic product data. Today’s better-than-expected trade balance data also failed to provide a lift for the currency.
The rally in the New Zealand Dollar on Wednesday was fueled by short-covering and oversold technical conditions, following yesterday’s dramatic closing price reversal bottom from the Kiwi’s lowest level since February 2016.
At 0815 GMT, the AUD/USD is trading .7174, down 0.0019 or -0.26% and the NZD/USD is at .6584, down 0.0007 or -0.10%.
Both currencies are being pressured by the divergence in monetary policy between the hawkish U.S. Federal Reserve and the dovish Reserve Banks of Australia and New Zealand. Earlier in the week, the RBA left interest rates unchanged for a 24th month. Although RBA Governor Philip Lowe said the next move in rates would likely be up, financial futures market traders have priced in the next rate hike for late 2019 or early 2020.
Additionally, an uncertain economic outlook for China, Australia’s and New Zealand’s key trading partner, has also weighed on the Aussie and Kiwi.
In economic news, Australia’s trade surplus narrowed to $1.6 billion as exports dipped and imports rose. In seasonally adjusted terms, the surplus in July fell to $1.55 billion from $1.9 billion in June.
The value of exports dropped by 1 percent, or $362 million, from June’s record $36.4 billion effort. At the same time, higher fuel costs nudged up imports by 1 percent to $34.6 billion.
In U.S. economic news on Wednesday, new data showed the U.S. trade deficit in July widened at its fastest rate since 2015 as monthly deficits with China and the European Union both hit new records. According to the data, in 2018, the U.S.’s overall goods and services deficit is up by $22 billion, or 7 percent, versus the same period last year.
According to the Commerce Department, in July, the U.S. trade deficit soared by 9.5 percent to $50.1 billion, putting America on pace for tis largest annual gap in a decade. The U.S. trade deficit with China swelled to a record $36.8 billion.
In other news, several Fed speakers offered their opinions on the direction of interest rates. Early in the session, St. Louis Fed President James Bullard said Wednesday that the central bank ought to pause further interest rate increases because its stance is already neutral or restrictive. FOMC Member Bostic delivered a hawkish speech, while FOMC Member Kashkari sounded dovish in his speech.
Atlanta Federal Reserve Bank President Raphael Bostic said on Wednesday with the U.S. economy at full employment, inflation at the Federal Reserve’s 2-percent goal, and the economic risks balanced, the U.S. central bank needs to keep raising interest rates.
Also on Wednesday, Minneapolis Federal Reserve Bank President Neel Kashkari, a noted dove, offered his assessment of the economy and his opinion on Fed policy. Kashkari said that he still believes the economy is not overheating yet, prompting him to continue his objection to rate increases.
Fed speakers and fresh U.S. economic data will be watched closely on Thursday along with potential surprise events pertaining to tariffs and trade disputes.
The major U.S. reports are ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI. The ADP report is expected to show the private sector added 195K jobs in August. The services PMI report is expected to come in at 56.8, up from 55.7.
Oversold technical conditions could drive the Aussie and Kiwi higher if this leads to aggressive short-covering, or position-squaring ahead of Friday’s U.S. Non-Farm Payrolls report. However, don’t mistake this for a bullish move or the start of an uptrend. The major fundamentals are still overwhelmingly bearish so any reasonable rallies should be treated as selling opportunities.