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AUD/USD and NZD/USD Fundamental Daily Forecast – Falling U.S. Treasury Yields Underpinning Aussie, Kiwi

James Hyerczyk
The majors hold on in the early hours following the weekend recovery, with resistance levels in play today as the investors look to break free from the bearish sentiment that has pinned the majors down of late.

The Australian and New Zealand Dollars posted strong rebound rallies on Thursday after a broad-based sell-off by the U.S. Dollar. The greenback was pressured after escalating trade tensions drove investors into the safety of U.S. Treasurys. This drove down yields, making the U.S. Dollar a less attractive investment.

Aussie and Kiwi investors have been jittery all week after President Trump requested the United States Trade Representative to identify $200 billion worth of Chinese goods late Monday, for additional tariffs at a rate of 10 percent.

Trump’s request for additional tariffs follows aggressive moves by both economic powerhouses last week. Beijing again reacted to Trump’s statement by pledging to retaliate with additional tariffs on U.S. goods of their own.

Adding to the bids in the U.S. Treasury markets was weaker than expected U.S. economic data. The Australian and New Zealand Dollars rallied off of multi-month lows after the Philadelphia Federal Reserve’s gauge of U.S. Mid-Atlantic business activity fell to near a 1 ½ year low.

The Philly Fed report said business activity fell from 34.4 in May to 19.9 in June, its lowest since November 2016. The index’s sharpest drop since January 2014 came amid escalation in a U.S.-China trade conflict, which has pressured the Australian and New Zealand Dollars in recent days.

Some traders said the Philly Fed miss to the downside was a convenient excuse for Aussie and Kiwi bears to take profits after a prolonged sell-off.

Forecast

The Australian and New Zealand Dollars are trading higher early Friday as investors continue to react to falling U.S. Treasury yields amid concerns over U.S.-China trade relations and key U.S. economic data on Friday.

At 0456 GMT, the AUD/USD is trading .7393, up 0.0015 or +0.22%. The NZD/USD is at .6904, up .0035 or +0.52%.

Traders showed little reaction to fresh data from New Zealand released earlier in the session. Visitor Arrivals came in up 2.7% versus the -1.0 percent previous read. Credit Card Spending was up 3.7%, but well below the previous 6.9% read.

The major reports from the U.S. that should move the markets on Friday are Final Manufacturing PMI and Flash Services PMI, due to be released at 1345 GMT.

Final Manufacturing PMI is expected to come in at 56.3, slightly below the previously reported 56.4. Flash Services PMI is forecast at 56.4, down from the previously reported 56.8.

The biggest influences on the AUD/USD and NZD/USD today will be any fresh tariff threats from the U.S. or China, U.S. economic data and the outcome of the OPEC meeting in Vienna. Keep an eye on the Treasury yields. If they continue to fall then the Aussie and Kiwi will strengthen.

This article was originally posted on FX Empire

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