AUD/USD and NZD/USD Fundamental Daily Forecast – Gains Capped Despite Strong Demand for Risky Assets

The Australian and New Zealand Dollars are trading lower on Wednesday after a failed attempt to continue yesterday’s rally brought in new sellers.

Aussie and Kiwi traders are also facing a slew of mixed signals from the markets, which is making it difficult to commit to a direction. The Australian Dollar, which is often viewed as a proxy for risk, is trading lower despite U.S. stock markets at record highs. Meanwhile, a sideways trade in the U.S. Dollar and Treasury yields may be capping gains, but also limiting losses.

Investors are also showing a muted response to slightly dovish comments from Federal Reserve Chairman Jerome Powell on Tuesday, which reaffirmed that tighter monetary policy was still on the way. Powell along with New York Fed President John Williams also warned that the economic recovery requires more time before a tapering of stimulus and higher borrowing costs are appropriate.

At 05:34 GMT, the AUD/USD is trading .7541, down 0.0015 or -0.19% and the NZD/USD is at .7004, down 0.0022 or -0.32%.

Powell said on Tuesday in a hearing before a U.S. House of Representatives sub-committee, “We will wait for evidence of actual inflation or other imbalances.” Williams said Fed officials will keep a close eye on economic data to determine when it will be appropriate to start adjusting monetary policy. “That’s still quite a ways off.

Australian Domestic Data

Earlier today, Australia reported on Flash Manufacturing PMI and Flash Services PMI along with data on Goods Trade Balance. RBA Assistant Governor Ellis also gave a speech.

“Expansion of the Australian private sector continued at a strong pace in June, though slowed for the second month running following April’s record,” according to Flash PMI data. “Survey respondents reflected that the sudden lockdown of Australia’s Victorian state had affected economic and demand conditions in the country. Private sector optimism likewise softened in the month. Meanwhile, inflationary pressures eased in June but remained elevated compared to historical data.”

In other news, Australia posted a record trade surplus in May, boosted by surging volumes and higher prices for its commodity exports, MarketWatch reported.

The country’s trade surplus stood at 13.32 billion Australian Dollars (US$10.05 billion), according to preliminary estimates released by the Australian Bureau of Statistics on Wednesday.

Iron ore, together with strong coal and meat exports, helped increase total exports to a record A$39.2 billion, up 11% from April. Imports increased 1% over the month.

Daily Forecast

After the Fed’s shift from dovish to hawkish last week, trader focus shifted to U.S. economic data. What this means is that in order to support the Fed’s notion that the economy is strengthening enough to warrant an earlier than expected rate hike in 2023, U.S. economic data is going to have to continue to show signs of improvement.

That includes Wednesday’s Flash Manufacturing PMI and Flash Services PMI. Later today, investors will have the opportunity to react to these reports at 13:45 GMT.

Flash Manufacturing PMI is expected to dip to 61.5 from 62.1 and Flash Services PMI is expected to come in at 70.0, down from 70.4.

FOMC Members Bowman and Bostic are also expected to deliver speeches that could move the AUD/USD and NZD/USD.