AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Traders Locked-in on Risk Sentiment

The Australian Dollar finished marginally lower on Tuesday in a volatile, two-sided session that featured a strong rally early in the day and a sell-off late in the session.

The Aussie gained ground early in the session after the Reserve Bank of Australia (RBA) left its benchmark interest rate on hold at a record low of 0.25% and said central bank bond purchases would be ‘scaled back’. The currency was also underpinned by higher oil prices and the easing of coronavirus-led restrictions in an attempt to revive economic activity.

Traders also said the dialed down rhetoric from the United States about investigating the cause of the coronavirus in China reduced fears about the impacts of a new trade war, helping to drive up demand for the higher-yielding Australian Dollar.

On Tuesday, the AUD/USD settled at .6433, up 0.0008 or +0.13%.

Late in the session, the AUD/USD pulled back to nearly unchanged in reaction to a U.S. stock market sell-off into the close. Stocks pulled back sharply late in the day after Federal Reserve Vice Chair Richard Clarida made downbeat comments about the depth of the economic contraction.

Fed’s Clarida Warns of Severe US Economic Contraction

A drop in demand for risky assets fueled by bearish comments from a high-ranking Fed official helped fuel a late session sell-off in the higher-yielding Australian Dollar on Tuesday.

The U.S. economy is likely to contract sharply during the second quarter and the unemployment rate could surge due to intentional business shutdowns prompted by the coronavirus pandemic, but there is a chance the recovery could start in the second half of the year, Federal Reserve Vice Chair Richard Clarida said on Tuesday.

“We’re living through the most severe contraction in activity and surge in unemployment that we’ve seen in our lifetimes,” Clarida said during an interview with CNBC.

Daily Forecast

At 01:30 GMT, traders will get a chance to react to the latest Australian Retail Sales figures. The report is expected to come in at 8.2%, unchanged from the previous month.

The price action on Tuesday indicates that the catalyst driving the AUD/USD is risk sentiment. This should continue over the near-term so traders should use the stock market as their guide. Economic data will have an impact on the Forex pair only if it is important enough to move the equity markets.