AUD/USD and NZD/USD Fundamental Daily Forecast – Counter-Trend Strength Not Likely to Last

The Australian and New Zealand Dollars are trading mixed on Monday as investors try to figure out how to play the real – rising U.S. interest rates and the speculative – President Trump’s criticism of Fed policy and his worries about the stronger U.S. Dollar inflicting damage on U.S. economic growth.

At 0701 GMT, the AUD/USD is trading .7416, down 0.0002 or -0.04% and the NZD/USD is at .6809, up 0.0002 or +0.01%.

Aussie and Kiwi investors are also weighing the potential impact of additional tariffs on China and subsequently the Australian and New Zealand economies. Additionally, Aussie investors may be sitting on their hands ahead of Wednesday’s New Zealand Trade Balance report and Australia’s quarterly Consumer Price Index report.

Forecast

The U.S. Dollar is actually trading higher against a basket of currencies on Monday. It is looking bearish, however, against the Japanese Yen. The rally against the other major currencies is probably related to higher U.S. Treasury yields. The stronger Yen is being supported by speculation of a policy change by the Bank of Japan next week.

This is important to know because some of the headlines are saying the U.S. Dollar is weak, and this is not the case today. It may have been the case on Thursday and Friday when President Trump criticized the Fed for raising rates and accusing it of punishing the economy for doing well. Today’s price action suggests this is old news especially since Trump can’t do anything about it because the Fed is politically neutral.

Trump also talked down the dollar late last week, which is consistent with his policy. If he is trying to grow the economy through increasing exports then he needs a weaker dollar to succeed. Long dollar investors may have used his commentary as an excuse to book profits after the Greenback reached a one-year high against a basket of currencies.

When trading the AUD/USD and the NZD/USD, one has to be aware that the long-term fundamentals are bearish, both the Reserve Bank of Australia and the Reserve Bank of New Zealand monetary policies are dovish and the Federal Reserve policy is hawkish. This favors the U.S. Dollar.

When we see short-term counter-trend rallies, keep in mind that we are witnessing moves fueled by position-squaring and some light speculative buying. I don’t really think the fundamentals support a prolonged rally in the Aussie and Kiwi at this time, and the best strategy is to trade the trend and wait for prices to hit resistance areas.