AUD/USD and NZD/USD Fundamental Daily Forecast – Down Sharply as Jump in Treasury Yields Boosts Greenback

The Australian and New Zealand Dollars are taking a hit on Wednesday, falling from multi-week highs reached earlier in the week, as a jump in Treasury yields gave the U.S. Dollar a reprieve, while domestic bonds took a beating amid fears of faster global inflation.

At 11:39 GMT, the AUD/USD is trading .7743, down 0.0013 or -0.17% and the NZD/USD is at .7184, down 0.0025 or -0.35%.

Rising Australian Yields Move to Forefront

The U.S. Dollar was benefiting from rising yields; it was not alone. Australian 10-year yields climbed even more to hit 1.421%, the highest since a brief spike during the market mayhem of last March according to Reuters. Yields were up 20 basis points in just two days and widened the spread over Treasuries to 10 basis points, from 2 basis points late last week.

Three-year yields remained pinned at 0.129% thanks to the Reserve Bank of Australia’s (RBA) continued commitment to super-easy policy, Reuters reported.

The spread between three- and 10-year yields widened to 129 basis points, the steepest curve since early 2014 and a potential boon at bank earnings.

RBNZ to Reconsider Stimulus Policy

In New Zealand, 10-year yields shot to 1.558% having risen 18 basis points on Tuesday alone.

In other news, investors are reconsidering how long the Reserve Bank of New Zealand (RBNZ) will maintain its stimulus package given the economy has rebounded and house prices are booming.

The central bank holds its first policy meeting of the year next week and investors assume it will keep rates at 0.25% but acknowledge the better economic background.

“The RBNZ might talk less about looming downside risks, and will probably not actively promote the possibility of further rate cuts, as it did over most of last year,” said Dominick Stephens, Westpac’s chief economist for NZ.

He expects the RBNZ will not start to hike rates until 2024, but could tinker with its bond buying program next week, Reuters reported.

“It seems a lot like the RBNZ has decided to slow the pace of bond purchases and allow long-term interest rates to rise, even though no such policy decision has been announced,” said Stephens.

Daily Outlook

U.S. Treasury yields are edging lower on Wednesday, but remained near multi-month highs, amid concerns about possible rising inflation.

Data for retail sales in the U.S. in January is due out at 13:30 GMT on Wednesday. Economists expect retail sales rose by 1.2% after a surprise 0.7% decline in December, according to Dow Jones.

Minutes from the last meeting of the U.S. central bank’s Federal Open Market Committee are due to be published at 19:00 GMT.