AUD/USD and NZD/USD Fundamental Daily Forecast – Concerns Over Future U.S. Growth Lift Aussie, Kiwi

The Australian and New Zealand Dollars rebounded on Friday following their steep sell-offs the previous session. The catalysts underpinning the currencies were lower U.S. Treasury yields and a weaker U.S. Dollar.

On Friday, the AUD/USD settled at .7402, up 0.0025 or +0.34% and the NZD/USD closed at .6796, up 0.0014 or +0.21%.

The U.S. Dollar weakened against the Aussie and Kiwi, helped by the decline in U.S. Treasury yields, which made the greenback a less-desirable asset. The drop in yields was in response to concerns that current GDP growth is unsustainable as lingering trade tensions with China are likely to be a drag on the economy in the second half of 2018.

U.S. GDP Report

A U.S. government report released on Friday showed that economic growth jumped in the second quarter at its fastest pace in nearly four years. According to the Department of Commerce, U.S. Gross Domestic Product rose 4.1 percent, its best pace since the third quarter of 2014 and the third-best growth rate since the Great Recession. The GDP number matched expectations from economists and was supported by an increase in consumer spending, exports and business investment.

U.S. Treasury Market Response

Despite the strong growth in the economy, which should have raised expectations for additional rate hikes by the Fed later in the year, U.S. Treasury yields fell as investors questioned whether the high growth rates will be sustainable especially in light of historically low levels of unemployment.

Investors followed in line with the thinking of U.S. Federal Reserve officials who are less certain GDP can remain above 4 percent. The central bankers forecast GDP to rise 2.8 percent for all of 2018 but then to tail off to 2.4 percent in 2019 and 2 percent in 2020.

The yield on 10-year Treasury note settled at 2.958, down 0.017, while the yield on the 30-year Treasury bond settled at 3.085, down 0.016.

Other U.S. News

In other economic news, U.S. consumer sentiment declined in July according to the University of Michigan. The index fell to 97.9 from 98.2 in June, as both the assessment of current economic conditions and expectations fell. Economists had forecast a 97.3 reading.

Domestic Data

Domestically, there were no major economic reports from New Zealand, but in Australia, the Producer Price Index came in at 0.3%, below the 0.5% forecast and previous reading.

Australian Dollar traders said the overall increase in the second quarter was mainly due to rises in the prices received for heavy and civil engineering construction, building construction and petroleum refining and petroleum fuel manufacturing.

This was partly offset by falls in the prices received for other agriculture, fishing and professional and scientific equipment manufacturing.

On a yearly basis, producer prices grew 1.5 percent in the June quarter, after a 1.7 percent increase in the preceding quarter.