The Australian and New Zealand Dollars are trading weaker against the U.S. Dollar shortly before the opening of the U.S. trading session. Traders continue to respond to expectations of higher U.S. interest rates while Australian and New Zealand interest rates are expected to remain steady.
At 0903 GMT, the AUD/USD is trading .7547, down $0.0032 or -0.42% and the NZD/USD is at .7054, down 0.0031 or -0.44%.
Last week, the U.S. 10-year Treasury yield rose above the psychologically key 3.0 percent threshold to four-year highs.
Traders are also responding to the easing of tensions over the U.S. – China trade dispute and North Korea’s nuclear program.
Essentially, the contrast between the hawkish Fed monetary policy and the dovish monetary policy of the Reserve Bank of Australia and the Reserve Bank of New Zealand is making the U.S. Dollar a more attractive investment. This is because rising U.S. interest rates have helped to widen the spread between U.S. Government Bonds and Australian and New Zealand Government Bonds.
The interest rate differential between 10-Year U.S. Treasury Notes and 10-Year Australian notes is -18.9 and the interest rate differential between 10-year U.S. Treasury notes and the 10-year New Zealand notes is -10.7.
Earlier today, in Australia, the MI inflation Gauge came in at 0.5%, up from 0.1%. HIA New Home Sales came in at -2.0%, down from -0.7%. Finally, Private Sector Credit was better-than-expected at 0.5%. Traders were looking for a read of 0.4%.
Contributing to the weakness in the NZD/USD was a weaker than expected ANZ Business Confidence report. It came in at -23.4 versus a previously reported -20.0.
“The survey was a mixed bag this month, consistent with an economy pushing its way through capacity constraints and some residual policy uncertainty but with some solid support from record-high terms of trade”, said ANZ Bank New Zealand chief economist Sharon Zollner. “All sectors are in the red, with services the least pessimistic and agriculture the most. Agriculture did manage a small gain on March, but construction plummeted to its lowest level since 2008.”
Forecast
The AUD/USD and NZD/USD are trending lower so we have a bias to the downside. This is being supported fundamentally by the firmer U.S. Dollar, rising interest rates and the easing of geopolitical tensions.
The market is not in a position to change the trend to up, but there is room for a meaningful short-covering rally due to technically oversold conditions. However, this move would have to be fueled by a surprise event.
While the agreement between North Korea and South Korea to work towards “denuclearization” of the Korean peninsula is making the headlines at this time, traders may start to show some response to the upcoming meeting between President Trump and Kim Jong Un in May.
Additionally, a delegation of U.S. officials, including Treasury Secretary Steven Mnuchin and President Donald Trump’s top economic and trade advisers are all expected in China later this week for trade negotiations.
In other news, traders will get a chance to respond to minor reports on U.S. Personal Income and Pending Home Sales. However, the price action may be muted because the thin holiday trade in Asia and ahead of Tuesday’s RBA and Wednesday’s Fed interest rate and monetary policy decisions.