AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Plunges as Global Economic Outlook Deteriorates.
The Australian and New Zealand Dollars are plunging against the U.S. Dollar on Friday on fears of a global recession and weaker demand for commodities and higher yielding investments. The gathering gloom is driving investors into the safe-have U.S. Dollar, pressuring risk-sensitive currencies like the Aussie and Kiwi. The Australian Dollar tumbled to a two-year low in the process.
At 16:01 GMT, the AUD/USD is trading .6788, down 0.0117 or -1.69% and the NZD/USD is at .6185, down 0.0059 or -0.94%. The Invesco CurrencyShares Australian Dollar Trust ETF (FXA) is trading $67.26, down $1.06 or -1.54%.
Essentially, red hot inflation and a rush by central banks to raise rates and stem the flow of cheap money has fueled sell-offs across markets and lifted assets seen as safer bets.
External Factors Driving Price Action
Global manufacturing struggled in June as higher prices and a darker economic outlook left consumers wary of making purchases, while China’s strict COVID-19 lockdowns and Russia’s invasion of Ukraine added to supply chain disruptions, surveys showed.
From the United States to the Euro Zone, activity at factories slowed to levels last seen during the initial wave of the pandemic. They were the latest signs pointing to the risk of all-out recession in the global economy, coming after the world’s top chipmakers said they were facing waning demand and as central bankers warned of painful interest rate hikes ahead.
In the U.S., factory data dampened global hopes for a ‘soft landing’. The slowdown in the United States was accompanied by declines in new orders and employment. The Institute for Supply Management’s index of national factory activity dropped to 53.0 last month, the lowest reading since June 2020, from 56.1 in May. Its measure of new orders contracted for the first time in two years, while employment remained weak.
All eyes appear to be on the U.S. Federal Reserve and the U.S. economy. This week’s remarks from Fed officials indicate the central bank is committed to bring inflation under control. However, the price action in the Aussie and Kiwi indicate there are worries over whether it can deliver a soft landing.
Currently, the odds are extremely low the Federal Reserve will slide into recession without dragging the rest of the world with it. However, today’s economic reports from the United States and the Euro Zone may have upped the chances.
Looking ahead, the Reserve Bank of Australia decides policy next Thursday, and traders expect a half point hike to its benchmark rate. But this isn’t helping the Aussie much on Friday, which has instead tracked commodity prices lower as the global economic outlook deteriorates.