AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Underpinned as Business Confidence Rises, Yields Drop

The Australian and New Zealand Dollars are edging higher early Tuesday following a weak trade the previous session. The currencies are being supported by lower U.S. Treasury yields, a pullback in the U.S. Dollar and higher U.S. equity futures. On Monday, the Aussie and the Kiwi fell as Treasury yields surged on expectations of faster economic normalization from the pandemic in the United States.

At 08:08 GMT, the AUD/USD is trading .7678, up 0.0032 or +0.42% and the NZD/USD is at .7137, up 0.0015 or +0.21%.

Sentiment for the U.S. Dollar approved in Monday’s session because of positive economic data and progress in passing a $1.9 trillion stimulus package, but the greenback could continue to struggle against commodity currencies like the Australian and New Zealand Dollars amid strong expectations for a rebound in global trade.

Economic News

A measure of Australian business confidence rose to a decade high in February as sales, profits and employment all picked up sharply in a positive sign for a continued economic recovery from last year’s COVID-induced recession, according to Reuters.

National Australia Bank’s index of business confidence climbed four points to +16 points in February, levels last seen in 2010. Its measure of conditions rebounded 6 points to +15, almost entirely recouping a pullback in January.

The conditions index was a world away from the trough of -34 hit last April at the height of the coronavirus pandemic and remained well above its long-run average of +6, Reuters wrote.

“This is a very positive survey result. Business conditions and confidence are both at multi-year highs and, importantly, we’re starting to see an uptrend in business hiring and investment activity,” said NAB chief economist Alan Oster.

“Firms are reporting running above average capacity levels and this tells us the economy is likely to have already recovered pre-virus GDP levels in Q1 2021.”

In New Zealand, a preliminary reading of business confidence disappointed. The preliminary New Zealand ANZ Business Confidence Index dropped from 7 to 0 in March. The activity outlook also dropped from 21.3 to 17.4. Looking at some more details, export tensions rose from 5.1 to 6.0. Investment intentions dropped slightly from 15.6 to 14.4. Employment intentions jumped from 10.6 to 16.0. Pricing intentions rose from 46.2 to 48.9. Inflation expectations rose from 1.76 to 1.95.

ANZ said:  “The economy is entering a phase in which gains will be harder won. The tourism sector pain is becoming more palpable, and booming sectors such as construction are running up against constraints in terms of the availability of labor and, increasingly, imported materials.”

Short-Term Outlook

Increasing demand for commodities is likely to continue to underpin the Aussie and the Kiwi, or at least slow down the selling pressure. However, more importantly, gains are likely to be limited by rising U.S. Treasury yields, which are helping to make the U.S. Dollar a more attractive asset.

Lower yields and rising equity prices will be supportive today. We could also start to see some profit-taking and short-covering as all eyes shift to the U.S. Federal Reserve’s two-day meeting next week. Although expectations are low that the central bank will announce major policy changes after Chair Jerome Powell last week did not express concern about the rise in bond yields.