AUD/USD and NZD/USD Fundamental Daily Forecast – Lower Treasury Yields Will Be Supportive

The Australian and New Zealand Dollars are trading slightly better early Thursday after a lackluster trade in Asia.  Both currencies are trying to recover from a sharp break on Wednesday. Dovish Fed Monetary Policy Meeting Minutes are helping with the recovery.

At 0600 GMT, the AUD/USD is trading .7562, up 0.0002 or +0.02% and the NZD/USD is at .6922, up 0.0006 or +0.08%.

The Aussie and Kiwi broke sharply on Wednesday on the back of increased geopolitical uncertainty and lower commodity prices. However, both currencies were able to recoup most of those losses late in the U.S. session, helped by the release of the Fed minutes, which investors perceived to indicate that the Fed won’t adapt a more aggressive rate tightening stance should inflation move above its mandated 2 percent annual target.

In other news, U.S. Flash Manufacturing PMI came in as expected at 56.6. Flash Services PMI was better-than-expected at 55.7 versus a 54.9 estimate. New Home Sales were a disappointing 662K. Traders were looking for 680K. The previous month’s report was revised lower to 672K.

Also helping to underpin the NZD/USD was a better-than-expected New Zealand Trade Balance report. The trade balance came in at 263M versus an estimate of 200M.

Forecast

The Fed’s soft tone in its minutes could continue to underpin the AUD/USD and NZD/USD on Thursday. The minutes sent a clear message to investors that the Fed won’t be too aggressive on any uptick in inflation beyond the 2 percent level. This essentially means that the Fed will stick with its plan for at least two more times in 2018 and its strategy of raising interest rates gradually.

A couple of Fed members will be in focus today as well as a few economic reports. However, investors are likely to respond more to the movement in U.S. Treasury markets and their continued response to the Fed minutes.

FOMC Member William Dudley is expected to speak early Thursday at 0815 GMT and FOMC Member Raphael Bostic is scheduled to speak at 1435 GMT.

Weekly Unemployment Claims are expected to come in at 220K, down slightly from 222K. The Home Price Index (HPI) is forecast at 0.5%, down slightly from the previously reported 0.6%. Existing Home Sales are expected to come in at 5.56M, down slightly from 5.60M.