AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie, Kiwi Under Pressure Ahead of RBNZ Rate Decision
The Australian and New Zealand Dollars are edging lower early Tuesday as investors continue to react to the reappointment of Federal Reserve Chair Jerome Powell for a second term. The news is leading investors to bet on higher U.S. interest rates and consequently, a stronger U.S. Dollar.
Traders are also responding to a surge in U.S. Treasury notes and two-year U.S. Treasury yields which rose 8.5 basis points on Monday to their highest since early March 2020.
In other news, domestic reports from Australia and New Zealand are having a limited impact on the price action. Meanwhile, Kiwi investors are bracing for another rate hike by the Reserve Bank (RBNZ) on Wednesday.
Powell’s Reappointment Strengthens US Dollar
Treasury yields rose and the U.S. Dollar jumped as investors reacted positively to the announcement that Federal Reserve Chair Jerome Powell was nominated for a second four-year term by President Joe Biden, driving expectations that the central bank will stay on its monetary path as the economy recovers from the pandemic and attempts to combat inflation.
The greenback had been trading stronger for days as investors increased bets on a faster tapering and an earlier rate hike by the Fed, but the bullishness was enhanced by the announcement that current Chair Powell will be reappointed by President Biden. Additionally, fears had been building in recent weeks that Lael Brainard may be chosen over Powell and she was perceived as a major dove, which had intensified fears.
New Zealand Retail Sales Volumes Drop Significantly
Stats NZ said the volume of retail sales fell just over eight percent in for the three months ended September, compared with a 3.3 percent rise in the June quarter.
Stats NZ retail trade manager Sue Chapman said lockdowns had impacted sales.
“Several comments from vehicle dealers and building supply owners stated that extended lockdowns, increased inventory costs, and increased supply issues led to lower sales and higher stocks this quarter,” Chapman said.
Australia Manufacturing Sector Accelerates in November – Markit
The manufacturing sector in Australia continued to expand in November, and at a faster pace, the latest survey from Markit Economics showed on Tuesday with a manufacturing PMI score of 58.5.
That’s up from 58.2 in October and it moves further above the boom-or-bust line of 50 that separates expansion from contraction.
The report also showed that the services PMI improved from 51.8 to 55.0 and the composite index also rose to 55.0 from 52.1 in October.
The RBNZ’s monetary policy decision on Wednesday is likely to be a catalyst for price volatility in the Kiwi. Speculation is rife that the central bank could deliver a higher 50-basis point increase to counter rising inflationary pressures.
Ahead of the RBNZ decision, traders will get the opportunity to react to the latest U.S. Flash Manufacturing PMI and Flash Services PMI. They are expected to come in better than last month at 59.3 and 59.1 respectively.