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James Hyerczyk

The Australian and New Zealand Dollars are trading lower on Wednesday after buyers failed to ride yesterday’s strong rally to new short-term highs. The cautious trade suggests investors aren’t too confident that the recent weakness in U.S. Treasury yields and the U.S. Dollar will continue over the near-term.

At 10:15 GMT, the AUD/USD is trading .7630, down 0.0035 or -0.45% and the NZD/USD is at .7040, down 0.0017 or -0.25%.

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The price action on Wednesday is erasing some of the gains from the previous session that were fueled by optimism over an accelerating global economy that helped drive commodity prices higher and consequently the commodity-linked Aussie and Kiwi.

Although a string of strong March manufacturing surveys from across the globe has shown rising demand, widespread supply shortages and higher prices for goods as economies learned to live with coronavirus curbs, the price action suggests Aussie and Kiwi traders want to see more proof that the global economy is moving forward.

The Australian and New Zealand Dollars are also showing little reaction to the news that the International Monetary Fund raised its forecast on Tuesday for global growth this year to 6%, a rate unseen since the 1970s, while also lifting its outlook for Australia.

Economic News

In New Zealand, ANZ reported its commodity index surged to an all-time peak in March on the back of a sharp rise in dairy prices. In Australia, the AIG Construction Index rose to 61.8, up from 57.4.

In other news, Chinese steel prices hit a record high amid strong demand and constrained supply, in turn supporting prices for iron ore, Australia’s biggest export earner.


Daily Forecast

The conditions are ripe for a rally in the AUD/USD and NZD/USD, but buyers may be waiting for the release of the Fed minutes later today at 18:00 GMT before making their move. The Fed kept interest rates unchanged in March, but investors will be looking closely at the minutes for clues as to when the central bank might raise rates.

Another factor potentially supportive for the AUD/USD, is the tightening of the spread between U.S. Government bonds and Australian Government bonds. The Aussie bond spread over Treasuries has narrowed to 4.5 basis points, having been as wide as 40 basis points at one state in February.

Finally, analysts at CBA said, “AUD/USD remains slightly undervalued relative to commodity prices in our view. We expect AUD to lift closer to its fair value of .8300.”

For a look at all of today’s economic events, check out our economic calendar.

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