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AUD/USD and NZD/USD Fundamental Daily Forecast – Rangebound Unless Fed Minutes are Extremely Hawkish

James Hyerczyk

After hitting its lowest level since June 14 early Tuesday, the Australian Dollar rebounded enough to turn earlier losses into solid gains. The New Zealand Dollar produced a similar chart pattern. Since the main trend is down and the fundamentals bearish, the rally was likely fueled by aggressive short-covering and related to low, pre-holiday volume.

On Tuesday, the AUD/USD settled at .7577, up 0.0028 or +0.37% and the NZD/USD finished at .6829, up 0.0020 or +0.29%.

Daily AUD/USD

The Australian Dollar received a boost after the Reserve Bank of Australia Governor Philip Lowe suggested that there is no strong case for a near-term adjustment in monetary policy, but the bank’s next move is likely to be a rate hike, rather than a rate hike.

“If the economy continues to improve as expected, it is more likely that the next move in interest rates will be up, rather than down,” Lowe said in Sydney.

“But the continuing spare capacity in the economy and the subdued outlook for inflation mean that there is not a strong case for a near-term adjustment in monetary policy. We will, of course, continue to keep that judgment under review,” he added.

In New Zealand, the GDT Price Index came in at -3.4%. The previous read was -3.5%. This was another sign that even the milk industry is suffering from the effects of low commodity prices.

U.S. home sales grew more than expected in October as hurricane-related disruptions dissipated, but a lingering shortage of houses continued to make homes unaffordable for some first-time buyers.

The National Association of Realtors said on Tuesday that existing home sales rose 2.0 percent to a seasonally adjusted annual rate of 5.48 million units last month. September’s sales pace was revised down to 5.37 million units from the previously reported 5.39 million units. Economists were looking for a 0.7 percent rise to 5.42 million-unit rate in October.

Late Tuesday, Fed Chair Janet Yellen said on Tuesday that the Federal Reserve is “reasonably close” to its goals and should keep gradually raising the U.S. interest rates to avoid the dual pitfalls of letting inflation drift below target for too long, and of driving unemployment down too far.

Early Wednesday, Australia reported its MI Leading Index at 0.1% and Construction Work Done came in a whopping 15.7% higher. This trounced the -2.1% estimate.

The New Zealand Visitor Arrivals report came in at 1.9%, better than the previous 0.4%.

Daily NZD/USD

Forecast

I’m not expecting much movement in the AUD/USD and NZD/USD today due to light volume ahead of Thursday’s U.S. bank holiday. Many major players will be on the sidelines today which makes the market susceptible to wild price swings.

During the U.S. trading session, investors will get the opportunity to react to the latest data on Durable Goods, Weekly Unemployment Claims and Revised University of Michigan Consumer sentiment. These reports could move gold prices if their changes are dramatic enough to impact the direction of the U.S. Dollar.

Core Durable Goods Orders and Durable Goods Orders are expected to show a 0.4% increase. Weekly Unemployment Claims will be released a day earlier because of the holiday. It is expected to come in at 241K. Revised University of Michigan Consumer Sentiment is expected to rise slightly to 98.2.

The Fed minutes from its November meeting will be released at 1900 GMT. They could provide signals on U.S. monetary policy. The Fed rate hike in December is roughly priced in and unless they are extremely hawkish, investors will be looking for more information on the timing and frequency of future rate hikes in 2018 and 2019.

Prices are likely to be rangebound today, however, we could see a breakout in either direction if the economic data is well outside the estimates or the Fed comes out as extremely bullish or bearish. Nonetheless, any strength in the AUD/USD and NZD/USD is likely to be fueled by short-covering rather than fresh buying. I don’t think there is any reason to go long the Forex pairs at this time.

This article was originally posted on FX Empire

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