Yahoo Finance AUD/USD and NZD/USD Fundamental Daily Forecast – Divided Fed, Solid Domestic Data Sets Bullish Tone
The Australian Dollar is trading higher and the New Zealand Dollar is mixed after confirming yesterday’s solid reversals to the upside. The currencies were initially supported by surprise bullish events in the U.S on Wednesday, but today’s follow-through moves were fueled by solid domestic economic data.
At 0905 GMT, the AUD/USD is trading .7940, up 0.0016 or +0.20% and the NZD/USD is at .7309, down 0.0003 or -0.04%. Earlier in the session, it traded at .7335.
Early Thursday, the New Zealand Dollar was supported by better-than-expected producer inflation data. PPI Input came in at 1.4%, beating the 0.9% forecast and 0.8% previous read. PPI Output was 1.3%, higher than the 0.7% estimate, but lower than the previous 1.4% read.
The data was also solid in Australia. The Employment Change showed the economy added 27.9K jobs in July. This beat the 19.8K estimate. June’s number was revised upward to 20.0K. The Unemployment Rate came in as expected at 5.6%.
Today’s rallies came on top of huge reversals to the upside on Wednesday.
The catalysts behind yesterday’s reversals from early session weakness were President Trump’s decision to disband a panel of industry experts on his advisory councils and mixed U.S. Federal Reserve monetary policy meeting minutes.
Trump’s move inspired investors to shed the U.S. Dollar because they may have lost confidence in his ability to run the government. The minutes of the Fed meeting produced mixed results which suggest the Federal Open Market Committee may not have the votes to raise rates later this year.
The minutes showed a fissure between FOMC members who wanted to stay the course and continue to raise rates and those members who preferred the Fed slow down the tightening process.
The more dovish meeting participants expressed “concern about the recent decline in inflation” and said the Fed “could afford to be patient under current circumstances.” The “argued against additional adjustments” until the central bank was sure that inflation was on track.
The more hawkish FOMC members “worried about risks arising from a labor market that had already reached full employment and was projected to tighten further.” They also argued that delaying a steady dose of rate hikes could cause the Fed to overshoot its employment target and cause financial instability.
Forecast
The daily charts indicate there is plenty of room to the upside for a retracement, which is probably what the markets are doing at this time. The AUD/USD is currently testing its retracement zone at .7936 to .7966. Trader reaction to this zone will likely determine the near-term direction. The NZD/USD may only be getting started with .7390 to .7430 its next target.
Although both the Reserve Bank of Australia and the Reserve Bank of New Zealand are expected to maintain a neutral stance, there is nothing they can do about the Fed’s interest rate policy. Based on yesterday’s minutes, it looks as if we won’t see a Fed rate hike later this year. This is likely to underpin both the Australian and New Zealand Dollar. Unless the U.S. economy suddenly improves enough to spike inflation to the upside, it’s possible that we may have seen the bottom for the rest of the year.
Traders have a series of reports today to digest but I don’t see anything that could sway the thought that the central bank will remain split on whether to raise rates before the end of the year. These reports include Weekly Unemployment Claims, the Philly Fed Manufacturing Index, Capacity Utilization, Industrial Production and the Conference Board’s Leading Index.
The market moving event today may be a speech by FOMC Member Robert Kaplan. Earlier in the week, he said he would “like to see more evidence that [the central bank is] making progress on our 2% inflation objective.” According to the FOMC Hawk/Dove Scorecard, Kaplan has been slightly hawkish. His comments are likely to cause volatility in the markets when he speaks at 1630 GMT.
This article was originally posted on FX Empire
