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AUD/USD and NZD/USD Fundamental Daily Forecast – Weakening Industrial Metals Likely to Cap Gains

·2-min read

The Australian and New Zealand Dollars are edging higher on Monday following steep declines the previous session. The price action suggests investors are trying to build a support base despite fears of a global recession and overall weakness in demand for higher risk assets.

Traders could also be taking advantage of a U.S. bank holiday with many of the major players on the sidelines. Volume is below average which means we could see exaggerated moves in either direction.

Monday is also a Federal holiday so U.S. Treasury markets are closed. Treasury bonds are trading nearly flat, which means yields are also flat. A further rise in bond prices will push yields lower, making the U.S. Dollar a less-attractive investment.

At 08:18 GMT, the AUD/USD is trading .6982, up 0.0047 or +0.67% and the NZD/USD is at .6346, up 0.0033 or +0.51%. On Friday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $68.69, down $1.16 or -1.66%.

Key Influences:  The key factors driving the price action recently are global recession risks, weaker commodity prices and yield spreads.

Global Growth May Be Weakening

There are signs that global growth is deteriorating markedly as central banks jack up rates aggressively and the Fed authorizes record quantitative tightening. Last week, the Fed, the Bank of England and the Swiss National Bank all raised their benchmark interest rates.

Commodity Currency Traders Eyeing China Demand

Concerns about demand in China have caused key Australian commodities to fall sharply, with iron ore taking a beating last week. Additionally, copper is at an eight-month low, aluminum at its lowest since July last year and steel prices in China at 16-month lows.

Yield Spreads are Favorable but Aussie, Kiwi Not Responding

Domestic interest rates have done little to boost either the Aussie or the Kiwi, though yields spreads have widened markedly in their favor.

Yields on 10-year Australian government bonds surged a staggering 46 basis points last week to 4.04%, blowing out the premium over Treasuries to its widest since early 2014, at 90 basis points, Reuters reported.

Busy Week Ahead for Australian Dollar Traders

Reserve Bank of Australia (RBA) Governor Philip Lowe will speak on Tuesday and is likely to reiterate that more interest rate hikes will be needed, given inflation has outpaced all expectations and could well hit 7% by the end of the year.

The RBA will also release minutes of its June meeting, at which it decided to hike by a surprisingly large 50 basis points to 0.85%, and markets are wagering on a similar-sized move for July as well.

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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