AUD/USD and NZD/USD Fundamental Daily Forecast – Chances of Three or More Fed Rate Hikes About 40%

The Australian Dollar fell on Tuesday to its lowest level since December 21 and the New Zealand Dollar to its lowest price since February 8 on concerns that China, a major trading partner, may be hit by U.S. sanctions. Aussie traders were also influenced by the dovish Reserve Bank of Australia minutes which strongly suggested the central bank was in no hurry to raise interest rates.

The AUD/USD settled at .7682, down 0.0035 or -0.45% and the NZD/USD closed at .7183, down 0.0060 or -0.83%.

Position-squaring ahead of Wednesday’s Fed interest rate decision, monetary policy statement and economic forecasts also weighed on the Forex pair.

Forecast

On Wednesday, the price action is likely to be driven by the U.S. Federal Reserve’s interest rate decision, monetary policy statement and economic projections.

According to the CME Group’s FedWatch tool, market expectations for a March rate hike are 94.4 percent as of Tuesday afternoon.

Given this certainty, investors are most likely to react to any hints offered by the Fed about whether the central bank will stay on track for three rate hikes in 2018 or if it expects to be more aggressive by forecasting four rate hikes. The Fed’s dot plot projections will reveal if the central bank believes an overheating economy needs to be cooled off by more aggressive monetary policy.

The AUD/USD and NZD/USD could break sharply if the Fed is hawkish in its tone. A dovish Fed could trigger a short-covering rally. However, keep in mind that investors are still concerned about a trade war, possible tariffs against China, elevated volatility and rising negative sentiment. These factors could limit gains or accelerate any sell-off.

As of Tuesday’s close, futures market data from the CME Group shows the chances of rates going up more than three times this year is around 40%, compared with 25% a month ago.

In other news, the Australian MI Leading Index beat expectations with a 0.3% read, compared to the newly revised -0.3% from last month.

In New Zealand, the GDT Price Index came in a disappointing -1.2%. Visitor Arrivals rose 2.0%, up from last month’s 0.1% reading. Credit Card Spending rose 7.0%, compared with last month’s increase of 4.6%.