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AUD/USD and NZD/USD Fundamental Daily Forecast – Mild Reaction to RBA Decision Then Flat Ahead of U.S. Elections

James Hyerczyk
Tuesday is mid-term Election Day in the U.S. I don’t expect to see much movement in the NZD/USD during the U.S. session. In fact, traders aren’t likely to start responding to the election results until after the polls close about Midnight GMT. At that time, the projections will start coming into the major cable news networks.

The New Zealand Dollar is trading flat shortly before the Reserve Bank of Australia releases its latest interest rate decision and rate statement at 0330 GMT. The RBA is widely expected to leave its benchmark interest rate unchanged at 1.50%.

There are no major reports from New Zealand but on Tuesday the GDT Price Index will be released. Two weeks ago it came in down 0.3%. Early Wednesday, New Zealand will release its latest Employment Change report. It is expected to show a 0.5% increase, matching the previous quarter’s increase. The Quarterly Unemployment Rate is expected to dip to 4.4%, down from 4.5%.

The New Zealand Quarterly Labor Cost Index is expected to show a 0.5% increase, down slightly from 0.6%. Quarterly Inflation Expectations are also due. Last quarter it showed a rise of 2.0%.

The New Zealand closed higher on Monday after failing to follow-through to the downside, following Friday’s dramatic closing price reversal top. Volume was light as many of the major players took to the sidelines ahead of Tuesday’s U.S. Mid-Term Elections.

In the U.S. on Monday, Final Services PMI came in at 54.8, slightly above the 54.7 forecast. More importantly, the ISM Non-Manufacturing PMI came in at 60.3, higher than the 59.3 estimate, but lower than the previous reading at 61.6.

Forecast

Tuesday is mid-term Election Day in the U.S. I don’t expect to see much movement in the NZD/USD during the U.S. session. In fact, traders aren’t likely to start responding to the election results until after the polls close about Midnight GMT. At that time, the projections will start coming into the major cable news networks.

We’re going into Tuesday taking a simple approach. If the Republican Party keeps control of the House and Senate than demand for risk is likely to soar. This should be bullish for the U.S. economy which will keep the Fed on-track for its plans to continue to raise interest rates throughout 2019. This will be bullish for the U.S. Dollar and bearish for the New Zealand Dollar.

Furthermore, it will also mean that the Trump Administration’s tariffs against China which have been hurting the New Zealand economy will continue. This should contribute further to the New Zealand Dollar’s weakness.

If power in the House and Senate shifts to the Democratic Party the demand for risk should drop, sending stocks sharply lower. If this pressures the U.S. Dollar then the New Zealand Dollar will strengthen. It’s hard read because a sharp break in equities would likely make the dollar a desirable safe-haven asset.

The loss of power by the Republicans could be the beginning of the end for Trump’s economic expansion plans and tariffs. Furthermore, it could also mean a rollback of Trump’s tax cuts.

The early consensus is that the Republicans will win the Senate and the Democrats will win the House. Some say this will mean the Trump administration will focus more on foreign policy and less on domestic stimulus. The Forex markets will then react to the possibility of softer growth.

This article was originally posted on FX Empire

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