Yahoo Finance AUD/USD and NZD/USD Fundamental Weekly Forecast – Were Rallies Fueled by Position-Squaring or Change in Sentiment?
The Australian and New Zealand Dollars enjoyed a reprieve last week from the recent relentless selling pressure that had pushed the currencies to multi-year lows. Nothing happened domestically to trigger the technical reversals on the weekly charts. However, due to a shift in investor sentiment on the U.S. Dollar, Aussie and Kiwi short-sellers were forced to make aggressive position-adjustments, sending prices higher.
For the week, the AUD/USD settled at .7427, up 0.0020 or +0.27% and the NZD/USD finished at .6838, up 0.0061 or +0.90%.
At the start of the week, the Aussie and Kiwi were under the bearish influence of the divergence in monetary policies between the hawkish U.S. Federal Reserve and the dovish Reserve Bank of Australia and Reserve Bank of New Zealand.
The AUD/USD and NZD/USD were also feeling the heat from low demand for risk as well as commodity-linked currencies due to investor concerns over the escalating trade dispute between the United States and China.
Late in the week, Aussie and Kiwi short-sellers decided it was time to pull in the reins on their bearish bets on the currencies, triggering an aggressive short-covering rally on Friday that may have enough upside momentum to carry over into this week.
Key Points
Investors seemed to shrug off the new tariffs from the U.S. on imports from China that kicked in on July 6. This wasn’t much of a surprise since the plan was announced several weeks ago and may have been fully-priced into the market.
Aussie and Kiwi investors also showed little reaction to the minutes from the Federal Open Market Committee’s June meeting released on Thursday. The minutes reflected confidence among the Federal Reserve’s policymakers in the strength of the U.S. economy and its plans for future interest rate hikes. Once again, the minutes offered no surprises since most of what was discussed was basically said in the Fed’s last monetary policy statement.
Chasing short-sellers out of the market, however, was Friday’s U.S. Non-Farm Payrolls report. The headline number beat the forecast, but the unemployment rate increased unexpectedly and average hourly earnings came in below expectations.
The mixed results from the jobs report drove up U.S. equities while pushing down U.S. Treasury yields. This encouraged U.S. Dollar bulls to book profits from recent long positions and Australian and New Zealand Dollar bears to aggressively cover their short positions.
Forecast
Last week was a U.S. holiday-shortened week, meaning the major banks likely took the week off. Why is this important? Because this allowed a few of the smaller players to push around the Forex pairs.
If the banks believe that sentiment has shifted against the U.S. Dollar then the AUD/USD and NZD/USD should continue their short-covering rallies. If the banks believe the rally was an overreaction to the U.S. jobs report then we should see prices retreat. We should find out early in the week whether banks want to chase the markets higher, or wait for a pullback into support or a value zone. They may even want to reset their firmly established short positions.
Essentially, it is going to come down to demand for risky assets and the direction of U.S. Treasury yields. Increased demand for risky investments and lower Treasury yields should underpin the Aussie and Kiwi against the U.S. Dollar. However, weaker equities and rising yields are likely to keep a lid on the AUD/USD and NZD/USD.
This article was originally posted on FX Empire
