AUD/USD and NZD/USD Fundamental Forecast – September 26, 2016

Both the Australian and New Zealand Dollars lost ground to the U.S. Dollar on Friday. Australian Dollar traders were taking profits after a solid week of gains. New Zealand Dollar traders were following through to the downside in preparation of lower interest rates down the road. The AUD/USD finished the session at .7621, down 0.0021 or -0.28%. The NZD/USD was off 0.0070 or 0.95% at .7241.

After rallying to its highest level since September 8 the day before, Australian Dollar traders felt the need to book profits ahead of the week-end. They were driven by lower demand for higher yielding assets and a slight recovery by the U.S. Dollar.

New Zealand Dollar traders continued to press the Kiwi lower following Thursday’s dramatic technical closing price reversal top. The potentially bearish chart pattern sent a signal to traders that the selling was greater than the buying at current price levels. The catalyst behind the selling pressure was the Reserve Bank’s monetary policy statement released earlier in the week which strongly hinted at another rate cut.

The economic calendar was light on Friday with the single piece of data the U.S. Flash Manufacturing PMI figure which came in at a disappointing 51.4. This number fell well short of the 52.1 estimate, however, it had very little impact on the performance of the Forex pair.

To recap the week, the Aussie gained ground against the U.S. Dollar after the Federal Reserve refused to move on interest rates, but left open the possibility of a rate hike in December. Furthermore, it lowered its expectations for the economy while reducing the number of future rate hikes.

The action by the Fed coupled with the Bank of Japan’s weak decision to overhaul its monetary policy strategy drove investors into higher-yielding assets to the benefit of the Australian Dollar.

The Kiwi, on the other hand, failed to capitalize on the Fed’s less-hawkish decision with traders turning bearish because of dovish talk from the RBNZ.

FORECAST

The focus will be on the New Zealand Dollar early Monday as the country is set to release the latest data on Trade Balance. The report is expected to show the trade balance gap widened last month to -730 million versus the previous -433 million read. This is a direct result of the strong New Zealand Dollar which is having a negative effect on exports. A wider than expected number should drive the NZD/USD lower as it will surely mean the RBNZ will cut interest rates further in November.

Australia is not scheduled to release any reports, but the AUD/USD is likely to get direction from the U.S. New Home Sales report, which is expected to show a dramatic decline from 654K units to 598K units.

FOMC Member Tarullo is also scheduled to speak. Based on his comments from September 9, I have to call him a little “hawkish”. At that time he said he wants to see more evidence of sustained inflation before considering an interest rate increase. But he added he can’t rule out a hike this year.

Early Tuesday, investors will get the opportunity to react to the first presidential debate held on Monday night in the U.S.