Yahoo Finance AUD/USD and NZD/USD Fundamental Weekly Forecast – Will Demand for Commodity-linked Currencies Continue?
The Australian and New Zealand Dollar posted stellar gains last week that were likely fueled by dovish comments from the U.S. Federal Reserve and a positive-outlook for U.S.-China trade relations. These events dampened fears of rapidly slowing global growth.
Since the first of the year in addition to stock market gains, global rates have risen, emerging markets have strengthened and commodity prices have firmed. Most importantly, commodity currencies like the Canadian, Australian and New Zealand Dollars have outperformed.
Last week, the AUD/USD settled at .7216, up 0.0097 or +1.36% and the NZD/USD finished at .6834, up 0.0098 or +1.45%.
Influence of Fed
Some investors are saying the buying spree started on January 4 when Fed Chair Jerome Powell greenlit the rallies in stocks, commodities and currencies when he acknowledged the on-going strength in the U.S. economy. His comments essentially quieted the critics who thought he was being too optimistic about the economy. However, he excited investors by saying the Federal Reserve would take a more patient approach toward policy decisions in 2019.
Optimism Over U.S.-China Trade Relations
Last week begin with two-days of mid-level trade talks between the United States and China in Beijing. Those couple of days went so well that participants added a third session of discussions. By the end of the week, the parties were planning for higher-level negotiations for later this month in Washington. This news helped drive the NZD/USD to its high for the week on Friday.
Other News
The Australian Trade Balance came in lower than expected at 1.93 billion. Traders were looking for a reading of 2.18 billion. The previous month was revised lower to 2.01 billion.
Australian Retail Sales rose more than expected, coming in at 0.4%, higher than the 0.3% forecast
Forecast
The primary focus for Aussie and Kiwi traders this week will be further developments over U.S.-China trade relations and the U.S. government shutdown. I think the Fed is out of the picture at this time because they have done more than enough to tell the markets what their plans are.
Essentially, it comes down to the U.S. Dollar and appetite for risky assets. The weaker U.S. Dollar will continue to make commodities more desirable assets and this should give currency-linked commodities like the Aussie and Kiwi a boost.
Keep in mind that the rallies in the Australian and New Zealand Dollars are basically investors adjusting positions to the new dovish Fed. Their domestic economies still face a mountain of issues.
Keep an Eye on US Activity
There are no major reports from Australia or New Zealand this week so the focus will remain on developments in the U.S.
The price action this week will continue to be driven by the direction of the U.S. Dollar. The greenback will largely be influenced by the direction of U.S. Treasury yields and yields will be moved by appetite for risk and a number of economic reports, Fed speakers and the government shutdown.
I think the government shutdown has reached a point where it will actually become a factor in the markets. If risk is off, look for the Aussie and Kiwi to weaken, if risk is on then the Aussie and Kiwi will likely move higher.
The major report is Producer Price Index. The minor reports are Philadelphia Fed Manufacturing Index and Preliminary University of Michigan Sentiment.
Several FOMC Members will also be speaking. So far most have been in favor of the Fed talking a break from rate hikes. This is potentially supportive for the AUD/USD and NZD/USD.
I think the wildcards this week are the trade deal and the government shutdown. I think everyone knows what the Fed is thinking so comments from Fed members will have a diminishing impact on the Aussie and Kiwi.
This article was originally posted on FX Empire
