AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Sharply Lower as Investors Seek Clarity Over Political Jostling

The Australian Dollar is down sharply on Thursday, pressured by political crisis, a stronger U.S. Dollar and a potential escalation in the trade dispute between the United States and China. The New Zealand Dollar is also trading lower with investors primarily reacted to a rebound in the greenback. We could also be looking at position-squaring ahead of Friday’s Trade Balance report.

At 0927 GMT, the AUD/USD is trading .7288, down 0.0065 or -0.90% and the NZD/USD is at .6670, down 0.0029 or -0.44%.

First the news event primarily driving the price action in the Aussie. Sellers are hitting the Australian Dollar hard as leadership movement reached a frenzy on Thursday, undermining confidence in the government and Australian assets in the eyes of global investors. The price action indicates there is clearly a risk premium being factored into the currency, although it’s pretty small at this point.

The reaction to a political event in Australia is unusual as global investors usually take them in stride especially since many are of the normal transition variety. How even, based on today’s reaction, it looks as if there is some concern that there is fracturing within the party that could shift policy.

The kind of event that could be acting as a catalyst today is that a new prime minister could come out of the current turmoil. This unexpected move could lead to further problems for the Aussie down the road.

Aussie Dollar investors are seeking clarity, however, today’s sellers would rather take protection first then ask questions later.

One concern is that if the Labor Party were to take control, they could implement their policies, which would be a marked shift for the government. There are also concerns that the Liberals may shift to the right. Furthermore, labor could introduce greater regulation, higher levels of government spending, higher taxes and a more interventionist approach to the economy.

In other news, the AUD/USD felt some pressure ahead of the trading session after the Fed minutes, released late Wednesday, solidified the chances of a rate hike in September. With the Reserve Bank of Australia expected to do nothing until late next year, the interest rate differential will continue to favor the U.S. Dollar.

Furthermore, China’s decision to retaliate against the U.S. for newly imposed tariffs raised enough concerns to drive investors out of higher risk assets and into the safety of the U.S. Dollar.

If these trends continue then look for pressure throughout the session on the Aussie and the Kiwi.