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AUD/USD and NZD/USD Fundamental Daily Forecast – Weaker as Risk Aversion Sets the Tone

James Hyerczyk

The Australian and New Zealand Dollars were pressured by a rise in the safe-haven U.S. Dollar on Friday, as investors grew cautious about a resurgence in U.S. coronavirus cases that cast doubts on expectations about a V-shaped recovery for the world’s largest economy. Currencies that thrive with higher risk appetite such as the Aussie and Kiwi struggled as U.S. equity markets fell, while investors sought protection in the greenback.

On Friday, the AUD/USD settled at .6861, down 0.0026 or -0.38% and the NZD/USD finished at .6423, down 0.0008 or -0.13%.

Outlook for Risky Currencies Turning Gloomy

Risk aversion dominated the U.S. session trade on Friday after the U.S. recorded an all-time daily high of 40,000 Covid-19 cases on Thursday, with a recent surge in California, Florida and Texas leading the way. Texas has halted its aggressive reopening plan in order to bring infections and hospitalizations back under control. Investors fear that this could happen in other states knocking the fragile economic recovery off course.

According to currencylive.com, “Rising cases aren’t just occurring in the U.S., parts of Europe, and Australia are also experiencing climbing infections, unnerving investors. The markets have remained relatively buoyant despite lingering concerns and this is because the overriding assumption is that the Fed will ramp up assistance if the economy starts to crack.”

There were no economic reports out of Australia and New Zealand on Friday, which left control of the trade in the hands of risk sentiment. In the U.S., traders showed little reaction to mostly downbeat data.

U.S. personal spending underwhelmed, rebounding by 8.2%, less than the 9% estimate. This was still a sharp rise on April’s record -12.6% drop.

Personal income dropped 4.2%, the most since January 2013, after surging by a record 10.8% in April when the government handed out one-time $1,200 checks to millions of people and boosted unemployment benefits to cushion against the COVID-19 hardship. The payments are part of a historic fiscal package worth nearly $3 trillion.

In a separate survey on Friday, the University of Michigan said its consumer sentiment index dipped to a reading of 78.1 in the middle of June.

Looking Ahead ….

When taken individually, the reports didn’t mean too much, but when taken together, a pattern may be developing. When consumers are confident, they spend more money, which is essential for the U.S. economy to recovery quickly. A scared consumer is unlikely to spend so freely and will hold back the economic rebound leading to a more drawn-out recovery.

Furthermore, some of the spending may be related to the $1200 financial gift from the government and the extra $600 in unemployment checks. Take these away and consumers will lose confidence and eventually spend less.

For a look at all of today’s economic events, check out our  economic calendar.

This article was originally posted on FX Empire

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