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AUD/USD and NZD/USD Fundamental Daily Forecast – Kiwi Rises after RBNZ Hints at More Rate Hikes

·3-min read

The Australian and New Zealand Dollars are edging higher early Wednesday, helped by a recovery in global equity markets. The move is an early sign of a shift in investor sentiment. The Kiwi is particularly strong after the Reserve Bank of New Zealand (RBNZ) raised its Official Cash Rate (OCR) as expected and issued a hawkish outlook on future policy moves.

At 04:56 GMT, the AUD/USD is trading .7116, up 0.0009 or +0.12% and the NZD/USD is at .6511, up 0.0051 or +0.79%. On Tuesday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $70.34, down $0.01 or -0.01%.

Firm Asian Stocks Point to Shift in Investor Sentiment

The risk-sensitive Australian and New Zealand Dollars are being underpinned early Wednesday as Asia stocks traded mostly in positive territory even as global growth concerns and weak U.S. economic data weighed on Wall Street the previous day.

According to early reports, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.35%, Australian shares were up 0.33%, and Seoul and Taiwan both ticked upwards 0.61% and 0.2%.

Hong Kong’s, Shanghai’s and China’s CSI300 indexes opened marginally higher while Japan’s Nikkei share average was down 0.18%.

Hawkish RBNZ Fuels Rebound in Kiwi

A hawkish tilt from RBNZ policymakers helped reverse earlier weakness in the New Zealand Dollar.

The RBNZ raised its benchmark interest rate by half a point, as widely expected, but released more hawkish guidance on its future policy path, saying that a larger and earlier hike reduces the risk of inflation becoming persistent.

“A larger and earlier increase in the OCR reduces the risk of inflation becoming persistent, while also providing more policy flexibility ahead in light of the highly uncertain global economic environment,” the RBNZ said in a statement.

Daily Forecast

The key to extending the rallies in the Australian and New Zealand Dollars will be the movement in the U.S. Dollar.

Some traders are predicting a recession in the United States if the Federal Reserve continues to act too aggressively in combating inflation.

There were signs on Tuesday that the Fed may have a problem due to soft indicators and surveys pointing to a slowdown. Although it may be too early to tell if the U.S. is on a path to recession.

“While hard data on activity and inflation do not suggest an imminent slowdown, it is hard to ignore a day when the S&P Services PMI, new home sales and Richmond Fed index all come in below the lowest expectation,” Steve Englander of Standard Chartered Bank said.

Atlanta Fed President Raphael Bostic warned on Tuesday that headlong rate hikes could create “significant economic dislocation,” urging his colleagues to “proceed carefully.”

It looks as if momentum has shifted in favor of the Aussie and Kiwi amid fears over the strength of the U.S. economy. Any more signs of weakness in the U.S. economy could encourage investors to dampen their outlook for aggressive interest rate hikes by the Fed.

This could spike the Aussie and Kiwi higher on aggressive short-covering and speculative buying.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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