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James Hyerczyk
AUD/USD and NZD/USD

The Australian and New Zealand Dollars are trading mixed on Monday. The Aussie is trading inside Friday’s wide range, which indicates investor indecision and impending volatility. Furthermore, buyers may be coming in to defend the May 17 main bottom at .6864. The Kiwi is up, but inside Friday’s range with buyers likely coming in to defend the May 23 bottom at .6481 and the October 16, 2018 main bottom at .6465.

At 11:24 GMT, the AUD/USD is trading .6868, down 0.0004 or -0.07% and the NZD/USD is at .6507, up 0.0016 or +0.23%.

Domestic economic weakness and fear that the U.S. economy may not be as weak as previously suspected has been driving the AUD/USD and NZD/USD lower the past two weeks. Traders are anticipating rate cuts by the Reserve Bank of Australia and the Reserve Bank of New Zealand as early as July, but the odds of a U.S. rate cut in June were dampened last week with the release of mixed economic data.

In Australia, the economy added more jobs than expected in May, but the unemployment rate came in higher than expected at 5.2%, raising the alarm that the RBA will cut in July.

In the U.S., concerns were raised over weaker consumer inflation data, but these worries were offset by firm producer inflation data and better-than expected news on retail sales. Traders are saying strong U.S. retail sales on Friday reduced the chances of a rate cut in June and underpinned the U.S. Dollar. Nonetheless, investors still feel Fed Chairman Jerome Powell will leave open the possibility of future rate cuts.

According to the CME Group’s FedWatch tool, expectations of a rate cut at the Fed’s June 18-19 meeting fell from 28.3% on Thursday to 21.7% after the retail data. However, bets for monetary easing at the July meeting remain at 85% and for September at 70%.

The concern for traders is not likely whether the Fed cuts rates or not at the June meeting, but how dovish it comes across for cuts in July or September. The market has been driving Treasury yields lower due to uncertainty over trade and geopolitics, the economy has been steady to weaker. Fed policymakers may not be influenced by the external events as much and may maintain focus on the economic data.

Furthermore, a resumption of trade talks between the United States and China may turn Treasury traders optimistic at any time. For example, at the G20 summit, U.S. President Trump and Chinese President Xi Jinping may meet and decide to resume trade talks like they did in December. This could be a positive that prevents the Fed from cutting rates aggressively.

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