AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Firms as Political Uncertainty is Lifted

The Australian Dollar is climbing on Friday, recovering from early session weakness and yesterday’s steep sell-off Scott Morrison won a Liberal Party leadership battle, paving the way for the treasurer to replace Malcolm Turnbull as prime minister.

At 0800 GMT, the AUD/USD is trading .7276, up 0.0028 or +0.39%.

According to reports, Morrison won a ballot of Liberal MPs, beating Peter Dutton, former home affairs minister, and Julie Bishop, foreign minister. Earlier in the week, Mr. Turnbull’s Liberal party leadership effectively ended when Liberal MPs voted by 45 to 40 in favor of holding a leadership contest.

Australia will hold its general elections next year, but Turnbull said he wouldn’t contest a leadership vote if the Liberal Party had enough support to bring the issue to vote. Additionally, Australia adjourned its parliament for around two weeks until September 10 to deal with the crisis.

The New Zealand Dollar is also trading better early Friday, rebounding from early session weakness on the back of better-than-expected trade data.

At 0800 GMT, the NZD/USD is at .6644, up 0.0006 or +0.09%.

New Zealand recorded a trade deficit of $143 million in July, a better than expected result for the month but partly offset by a downward revision in June. The annual deficit widened further to $4,441 million.

Seasonally adjusted exports jumped by 6.3 percent in July, with a sharp rise in volumes across most commodities. According to Econotimes.com, “This suggests that the strength in July may have been a matter of timing, with a greater than usual number of shipments during the month. There was also a strong lift in dairy export prices for the month, but recent dairy auctions indicate that this will soon reverse, Westpac Research reported.”

Forecast

We expect to see the Australia Dollar right the ship quickly after Thursday’s steep sell-off, now that most of the political uncertainty has been lifted. Typically Aussie investors ignore local politics. Although this week’s jostling provided enough drama to drive the currency lower, history suggests the Australian Dollar will soon return to its recent levels as traditional fundamentals remain strong.

According to ANZ Bank, “Australian political uncertainty has the potential to linger for a while. However, we don’t see wholesale changes in the policy agenda. Moreover, this latest leadership spill is occurring against a stronger economic backdrop than in previous episodes.”

“The Australian fiscal situation is now healthier and the economy has better momentum (in part because the terms of trade is no longer falling sharply), arguably providing the economy with more resilience.”

Later today, investors will get the opportunity to react to a report on July orders for durable goods at 1230 GMT, but the major event is a speech due at 1400 GMT from Fed Chairman Powell at the Jackson Hole, Wyoming central bankers’ symposium. Investors will be watching Powell’s words closely for any clues on the pace of the interest-rate hikes or his insights on the impact of tariffs, and U.S. economic growth.

Earlier in the week, the Fed minutes showed support for a further interest-rate hike in the near term, but also revealed concerns that escalating trade wars could harm the U.S. economy.