AUD/USD and NZD/USD Fundamental Daily Forecast – Higher U.S. Yields Continue to Pressure Aussie, Kiwi

The Australian and New Zealand Dollars are trading lower against the U.S. Dollar early Monday. Both currencies are still trading inside Friday’s range, which suggests investor indecision and impending volatility. Increased demand for higher-yielding assets is underpinning the currencies, but higher U.S. Treasury yields are capping gains by making the U.S. Dollar a more attractive investment.

At 0633 GMT, the AUD/USD is trading .7212, down 0.0005 or -0.08% and the NZD/USD is at .6611, down 0.0008 or -0.12%.

Over the weekend, China released its Manufacturing PMI. It came in at 50.8, below the 51.2 forecast. It also represented a decline from the previously reported 51.3, Non-Manufacturing PMI, however, increased to 54.9 from 54.2. This was better than the 54.1 forecast. Caixin Manufacturing Pmi was 50.0, down from 50.6 and below the 50.5 forecast. A reading of below 50.0 indicates contraction.

Australia is on bank holiday today so volume and volatility are a little light. Nonetheless, there were reports. AIG Manufacturing Index was 59.0, up from 56.7. The MI Inflation Gauge was 0.3%, up from 0.1%.

Forecast

The AUD/USD and NZD/USD are likely to remain under pressure today as long as the focus remains on expectations of higher U.S. interest rates. Driving the price action at this time is the widening of the spread between U.S. Government bond yields and Australian and New Zealand Government bond yields. Investors are leaving the Aussie and Kiwi and chasing the higher U.S. yields.

Furthermore, we could see additional pressure on the Australian Dollar because of potentially bearish developments in the Australian financial sector. An interim report by Australia’s Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, revealed instances of bribery, fraud, fee-gouging and board-level deception within the sector.

Later today, investors will get the opportunity to react to a slew of U.S. economic data including Final Manufacturing PMI, Construction Spending and Total Vehicle Sales. The major report is the ISM Manufacturing PMI. It is expected to come in at 60.1, slightly below the previously reported 61.3.

Federal Open Market Committee Member Bostic is also scheduled to speak. Recently, Raphael Bostic of the Atlanta Fed expressed worries about the potential for an inverted yield curve – short term rates higher than long-term rates – which could be a signal for an upcoming downturn as the inversion has preceded recessions in recent history.