Yahoo Finance AUD/USD and NZD/USD Fundamental Weekly Forecast – Direction Determined by Whether Traders Price-in 2 or 3 Fed Rate Hikes
The Australian and New Zealand Dollars fell early last week as the political turmoil in Italy drove investors out of higher risk assets and into safe haven investments. The Aussie and Kiwi made recoveries into last week’s close on a drop in U.S. Treasury yields as tensions in Italy eased. However, investors gave back some of the gains following the release of the stronger-than-forecast U.S. Non-Farm Payrolls report.
The AUD/USD settled at .7568, up 0.0021 or +0.28% and the NZD/USD finished the week at .6987, up 0.0071 or +1.03%.
U.S. job growth accelerated in May and the unemployment rate dropped to an 18-year low, highlighting tightening labor conditions. The government also reported solid wage gains, making a rate hike in June near-certain, and raising expectations of a fourth hike this year.
According to the Bureau of Labor Statistics, the U.S. economy continued to add jobs at a brisk pace in May, with nonfarm payrolls up 223,000 and the unemployment rate falling to 3.8 percent. Economists were looking for payroll growth of 188,000 and the jobless rate to hold steady at 3.9 percent.
Most importantly, the closely watched average hourly earnings metric rose 0.3 percent, slightly warmer than expected, yielding an annualized rate of 2.7 percent, up one-tenth of a point from April. Economists were looking for a 0.2 percent increase.
U.S. Treasury yields rose Friday after the government reported that the economy added more jobs than expected while wages increased better than expected in the month of May.
The yield on the benchmark 10-year Treasury note was higher at 2.888 percent, down from session highs above 2.9 percent. The yield on the 30-year Treasury bond was also higher at 3.035 percent.
Forecast
There are no major reports out of New Zealand this week. The U.S. is set to release data on ISM Non-Manufacturing PMI. With a June rate hike a statistical certainty, the focus for traders will focus on whether the Fed is concerned enough about inflation to raise interest rates in September and December, or only one more time.
It’s a big week for Australian data. Early Monday, the government will release data on Retail Sales. The report is expected to show a 0.3% increase, up from 0.0%.
Tuesday will feature the RBA Rate Statement. The central bank is widely expected to leave interest rates unchanged. Early Wednesday, investors will get the opportunity to react to the latest quarterly GDP data. The report is expected to show the economy grew by 0.8%, up from 0.4%. Early Thursday, the Australian Trade Balance is forecast to come in at 1.03 Billion, down from 1.53 Billion.
There were four events last week that acted as catalysts. Some were related to geopolitics, some to economics, but essentially the direction of the AUD/USD and NZD/USD was determined by the direction of U.S. Treasury yields.
Lately the Aussie and Kiwi have been firming after building support bases. This doesn’t mean the longer-term trend is changing, but there could be changes to the short-term trend as investors adjust their positions to reflect the possibility of 2 or 3 more rate hikes in 2018.
This article was originally posted on FX Empire
