AUD/USD and NZD/USD Fundamental Daily Forecast – Facing Downside Risks Due to Weakening Commodity Prices

The Australian and New Zealand Dollars firmed on Friday as demand for higher risk assets rose following a sharp break the previous session. Despite the rally, the risks are still pointed to the downside due to the recent weakening in commodity prices.

On Friday, the AUD/USD settled at .7749, up 0.0042 or +0.54% and the NZD/USD finished at .7196, up 0.0031 or +0.43%.

During the previous session, the Aussie slipped to a one-week low and the Kiwi weakened on reports U.S. President Joe Biden was planning to nearly double capital gains tax on wealthy Americans hit risk appetite. The Kiwi was also pressured after the government said it intended to regulate bank lending standards, traditionally the domain of the Reserve Bank of New Zealand (RBNZ).

The Australian and New Zealand Dollars recovered on Friday as U.S. equity markets rose after analysts downplayed the impact of the potential tax increases. Policy strategists said that Democrats are expected to raise taxes for the wealthy, but the plan is not likely to pass as proposed.

“We expect Congress will pass a scaled back version of this tax increase,” wrote Goldman Sachs economists in a note. “We expect Congress will settle on a more modest increase, potentially around 28%.”

Australia Economic News

The manufacturing sector in Australia is continuing to expand in April, and at a faster pace, Friday’s flash estimate from Markit Economics revealed on Friday with a survey record manufacturing PMI score of 59.6.

The number is up from 56.8 in March and it moves further above the boom-or-bust line of 50 that separates expansion from contraction.

Markit Economics said the upturn was associated with improve client confidence, buoyant market conditions, strengthening demand, the easing of COVID-19 restrictions and low interest rates.

Aggregate new orders likewise increased at a survey-record pace, while the rise in total sales was supported by a recovery in new export orders.

Also, the services index improved to 58.6 in April from 55.5 in March and the composite index climbed to 58.8 in April from 55.5 in March.

US Economic News

Markit’s preliminary U.S. manufacturing purchasing manager’s index for April came in at 60.6, slightly ahead of estimates from economists surveyed by Dow Jones. The composite came in at 62.2. The readings for manufacturing, services and the composite index were all at a record high for Markit’s flash series.

New home sales jumped in March after February’s cold weather across the country, with more than a million houses sold, the Census Bureau said Friday.