Yahoo Finance AUD/USD and NZD/USD Fundamental Daily Forecast – Shrinking Interest Rate Differential Weighing on Aussie, Kiwi
The Australian and New Zealand Dollars finished lower on Friday while posting huge losses for the week. The catalyst behind the sell-off was the divergence between the policies of the U.S. Federal Reserve and the Reserve Bank of Australia and Reserve Bank of New Zealand.
This led to a tightening of the yield curve between U.S. government debt and Australian and New Zealand government debt. The interest rate differential shank to the smallest in over 17 years, undermining their appeal as carry trades.
The AUD/USD settled at .7564, down 0.0023 or -0.30% and the NZD/USD finished at .6812.
The Forex pairs were mostly pressured by expectations of rising interest rates in the U.S. with the Fed scheduled to raise rates in December and perhaps as many as three times in 2018. This idea was supported by strong U.S. economic data throughout the week.
U.S producer inflation came in much higher than expected. U.S. consumer inflation matched the forecast which meant it was in line with the Fed’s projections for a gradual increase over time. Retail Sales were a bullish surprise, coming in at 0.2% versus estimates of 0.05.
Domestically, the Australian Dollar was under pressure due to a weaker-than-expected Employment Change. It showed the economy added 3.7K jobs versus a forecast of 17.8K. The Unemployment Rate, however, did tick lower to 5.4%.
The New Zealand Dollar continued to feel pressure from a change in government and its possible impact on monetary policy. Domestically, PPI input came in at 1.0%, below the 1.2% estimate.
Finally, a drop in demand for commodities, especially industrial metals also weighed on the Aussie and the Kiwi. They declined throughout the week after disappointing reports from China suggested a possible drop in demand.
Other than an occasional short-covering rally due to oversold conditions, which is probably going to be another short-selling opportunity, expectations are for the AUD/USD and NZD/USD to continue to weaken over the near-term.
This article was originally posted on FX Empire
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