AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie CapEx Falls as COVID-10 Lockdowns Hit Demand

The Australian and New Zealand Dollars are trading mixed early Thursday as investors await a key speech from Federal Reserve Chairman Jerome Powell later in the day. Both currencies are also benefiting from a weaker U.S. Dollar. Lower Treasury yields are helping to make the U.S. Dollar a less-attractive asset.

At 06:29 GMT, the AUD/USD is trading .7235, down 0.0001 or -0.02% and the NZD/USD is at .6624, up 0.0002 or +0.04%.

Speculation is rife Federal Reserve Chair Jerome Powell will use a speech later Thursday to signal the central bank will soften its inflation target to allow policy to stay super-easy for longer, a potential drag on the U.S. Dollar.

Domestic Data Not as Bad as First Feared

Australian data showed business investment dropped 5.9% in the second quarter as coronavirus lockdowns hit demand, though that was a lot better than the forecast of an 8.4% decline.

Firms did scale back future spending plans, but again by not nearly as much as expected, thanks in part to the mining sector which is benefiting from strong Chinese demand, particularly iron ore.

“The upshot is that the outlook for capital spending isn’t as gloomy as one would expect in the current environment,” said Marcel Thielant, an economist at Capital Economics.

He now estimates gross domestic product likely fell by around 4.5% in the June quarter, from the previous quarter, up from a previous forecast of 6.5%. The GDP data is due next week.

Investor confidence in Australian assets was underlined by details of the government’s huge A$21 billion ($15.20 billion) bond sale on Wednesday, which drew A$66 billion of bids.

Kiwi Traders Shrug Off Narrowing Trade Surplus

New Zealand reported a merchandise trade surplus of NZ$282 million in July, Statistics New Zealand said on Wednesday – down from NZ$426 million in June.

Imports tumbled 18.0 percent on year to NZ$4.6 billion, while exports eased an annual 0.2 percent to NZ$4.9 billion.

For the first month in almost 343 years, no crude oil was imported into New Zealand, the stats bureau noted.

In the year to July, imports fell NZ$4.1 billion or 6.4 percent to NZ$60.3 billion and exports sank NZ$1.3 billion or 2.1 percent to NZ$60.2 billion. The trade deficit was NZ$115 million.

Daily Forecast

Early in the session on Thursday, investors will get the opportunity to react to the latest U.S. Preliminary GDP data, weekly unemployment claims and Pending Home Sales. However, all eyes will be on Powell’s speech.

Preliminary GDP is expected to show the economy contracted 32.5%. Unemployment claims are forecast to have risen by 1.0 million and Pending Home Sales are expected to have risen by 2.5%.

Thursday’s trading is likely to be driven in large part by comments from Fed Chair Jerome Powell, who is expected at 13:10 GMT to introduce a new pandemic-era tool to combat the economic impact of COVID 19 and foster inflation in the U.S.

The central bank has for years tried to keep inflation at 2%, a rate of price increase that policymakers consider both manageable and indicative of a healthy economy. But ever since the financial crisis, inflation in the U.S. has more often than not lagged the Fed’s target.

Powell is expected to acknowledge that ongoing inflation shortfall and announce that the Fed will now have an “average inflation” target. Investors say that the move will allow the Fed to be more comfortable with inflation creeping above the 2% threshold so long as it’s eventually offset by periods of below-average price growth.

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