AUD/USD and NZD/USD Fundamental Forecast – September 29, 2016

The Australian Dollar hit a seven-week high and the New Zealand Dollar recovered from early session weakness after OPEC reached a tentative deal to reduce crude output levels. The news was powerful enough to shift investor demand for the commodity-linked currencies sending the AUD/USD to .7691 on the close, up 0.0025 or +0.32%. The NZD/USD finished the session at .7282, down 0.0017 or -0.24%, but well-off its low at .7232.

U.S. West Texas Intermediate crude oil prices rose more than 5.0% after OPEC said it would agree to limit production. The agreement of a reduction of 750.000 barrels per day to 32.5 million barrels per day was struck at an informal meeting in Algiers. There is still some lingering uncertainties because OPEC is currently producing a record 34 million barrels per day.

The Aussie Dollar spiked higher on the intraday chart immediately after the story was released. The news came as a surprise with many investors caught on the wrong side of the market after most thought the meeting would pass without a deal being struck. The news saved the New Zealand Dollar from retesting this week’s low at .7218. Taking out this level would have fueled a sharper break based on technical analysis.

FORECAST

There are no major economic reports from Australia and New Zealand so early in the session, investors are likely to react to the technical momentum created by the surprise OPEC announcement. With the tone of the Australian Dollar bullish, the size of any rally today will likely be determined first by the strength in the Asian stock markets, second, by the reaction of European and U.K. investors and finally, the follow-through move in the U.S. equity markets.

Several Fed speakers are scheduled on Thursday along with a list of U.S. economic data. However, the speakers and the data have to be either extremely bullish or extremely bearish to influence the AUD/USD and NZD/USD since today is likely to be all about the momentum created by the OPEC news.

On Thursday, Fed Chair Janet Yellen is speaking again, but by video link to a minority banking conference so investors are putting little chance in her mentioning anything about Fed policy. Philadelphia Fed President Patrick Harker, Atlanta Fed President Dennis Lockhart and Governor Jerome Powell are all scheduled to speak. Like Tuesday, investors will be listening for any clues as to the timing of the next rate hike. The CME Group’s Fed Funds Indicators give a November rate hike a 10% chance and a December rate hike a 54% chance. Powell voted with the “no change” majority last week.

On the economic front, investors will get the opportunity to react to the Final U.S. GDP. It is expected to come in at 1.3%. The Goods Trade Balance is expected to show the deficit grew to -62.8 billion, up from -58.8 billion. Minor reports include Weekly Unemployment Claims and Pending Home Sales

The GDP report could move the AUD/USD and NZD/USD but it would have to miss badly to the downside to attract sellers into the market. The Fed speakers could also trigger volatility if they come across as hawkish about the direction of interest rates. However, the direction of these two Forex pairs will largely be determined by the strength and direction of the major global stock indexes especially the U.S. markets where the rally started. Look for the Australian Dollar to go after the psychological .7700 level. The New Zealand Dollar will likely follow suit, but gains will be limited because sellers are still in control in anticipation of a likely rate cut in November by the Reserve Bank of New Zealand.