AUD/USD and NZD/USD Fundamental Daily Forecast – Could Spike Higher on Weak U.S. Economic Data

The Australian and New Zealand Dollars are trading higher on Friday with investors showing little response to the “risk-off” tone hitting the financial markets. Australia and New Zealand face exposure to China. Today’s news affects U.S.-Mexico relations.

The Aussie and the Kiwi are probably being underpinned by another steep drop in U.S. Treasury yields. This is helping to tighten the spread between U.S. Government bonds and Australian and New Zealand Government bonds. This is making the U.S. Dollar a less-desirable asset.

At 07:17 GMT, the AUD/USD is trading .6914, up 0.0002 or +0.03% and the NZD/USD is at .6512, up 0.0003 or +0.04%.

U.S. Economic News

The AUD/USD and NZD/USD traded mostly steady on Thursday as Treasury yields rose along with stocks, creating a slight “risk-on” tone. U.S. Preliminary GDP came in as expected at 3.1%. Goods Trade Balance also hit the forecast at -72.1 Billion. Preliminary Wholesale Inventories rose 0.7%, higher than expected. Not good news as it indicated a build-up of inventories. Weekly Unemployment Claims also matched the forecast. However, Pending Home Sales missed the mark with a 1.5% decline.

Australia and New Zealand News

There was no fresh news from Australia on Thursday. In New Zealand, Building Consents fell 7.9%. The previous month was revised lower to 7.4%. There was little reaction to the New Zealand Annual Budget Release.

The Aussie and Kiwi showed little response to the fresh economic data from China released earlier today. Non-Manufacturing PMI was 54.3, unchanged. Manufacturing PMI fell to 49.4 from 49.9.

Daily Forecast

The early price action suggests the “risk-off” tone is not likely to be bearish for the AUD/USD and NZD/USD, but it could limit gains. Perhaps a steep break in the stock market will trigger some selling, but a steep plunge in Treasury yields could offset this news. Right now the key market driver is the tightening interest rate differential between the government bond yields, and the softening divergence between the monetary policies of the U.S. Federal Reserve and the Reserve Banks of Australia and New Zealand.

Later today, investors will get the opportunity to react to key U.S. economic data. Weaker-than-expected numbers should underpin the Aussie and Kiwi and could trigger a surge to the upside. Since this would indicate the economy is weakening, while moving the Fed closer to a rate cut.

Core PCE Price Index is expected to rise 0.2%, up from 0.0%. Personal Spending is expected to come in at 0.2% versus last month’s 0.9% rise. Personal Income is expected to rise 0.3% versus 0.1% last month.

Chicago PMI is expected to come in at 55.1. Last month’s reading was 52.6. Revised University of Michigan Consumer Sentiment is expected to come in at 102.0, down slightly from 102.4.

The Core PCE Index and Personal Spending data should have the biggest influence on the AUD/USD and NZD/USD. Look for heightened volatility when the data is released at 12:30 GMT.

Investors aren’t paying too much attention to whether it’s a risk-on or risk-off session. The main focus will be on the strength of the U.S. economy and whether the Fed will have to cut rates later this year.