AUD/USD and NZD/USD Fundamental Daily Forecast – Looking for Two-Sided Trade as Investors Adjust to Fed’s Decisions

A weaker U.S. Dollar is helping to fuel a recovery in the Australian and New Zealand Dollars on Thursday. The move is being fueled by trader interpretation of the Fed’s monetary policy decisions. Aussie and Kiwi investors may also be responding to a new policy tool from China’s central bank. Kiwi investors are showing a muted response to weaker-than-expected economic data, while Aussie investors are reacting positively to mixed labor market data.

At 0937 GMT, the AUD/USD is trading .7127, up .0019 or +0.26% and the NZD/USD is at .6762, down 0.0005 or -0.08%. This is up from the .6724 bottom.

Fed Influence

On Wednesday, the U.S. Federal Reserve raised its benchmark interest rate by 25-basis points but it also reduced the number of expected rate hikes in 2019. Going into the Fed’s decisions, Australian and New Zealand Dollar traders were expecting the Fed to announce it would take a pause in its aggressive monetary policy in 2019. In other words, there would be no rate hikes. Additionally, traders expected the Fed to be a little more cautious due to rising uncertainty about global economic growth. However, investors were surprised by the Fed’s commitment to retain the core of its plan to tighten monetary policy.

There were some small tweaks in the monetary policy statement including lowered growth and inflation expectations. However, these subtle changes were not as significant as investors had hoped.

China Announces New Policy Tool

According to Reuters, “China’s central bank rolled out a policy tool to spur lending to small and private firms on Wednesday. Some analysts said this move was effectively a targeted rate cut and see more pressure on the Yuan on expectations of further monetary easing to combat a slowing economy.”

New Zealand Gross Domestic Product

The NZD/USD was pressured early in the session after the release of weaker-than-expected economic data. New Zealand GDP came in at 0.3%, lower than the 0.6% forecast. The report showed that New Zealand’s economic growth slumped to its lowest in almost five years in the third quarter, stoking talk the Reserve Bank of New Zealand might take a more dovish monetary policy stance in 2019.

In other news, the New Zealand Trade Balance came in at -861M, better than the -880M forecast. The previous month however, was revised lower to -1317M.

Australian Labor Market Data

In Australia, the Employment Change report showed the economy added 37.0K new jobs in November, however, the Unemployment Rate rose from 5.0% to 5.1%.

Forecast

Yesterday and earlier today, the AUD/USD and NZD/USD responded to the hawkish side of the Fed’s monetary policy decisions. Today’s intraday reversal to the upside could be position-adjusting related to the dovish side of the Fed’s monetary policy decisions. Traders could continue to generate a volatile two-sided trade until all the necessary position-adjustments are made. Once completed, the trend traders will resume control.