AUD/USD and NZD/USD Fundamental Daily Forecast – Monetary Policy Divergence Likely to Keep Pressure on Aussie, Kiwi

The Australian and New Zealand Dollars traded mixed on Friday in a lackluster trade. The price action may have been a reflection of the two-sided trade in the Treasury market.

At 1957 GMT, the AUD/USD is trading .7511, down 0.0003 or -0.04% and the NZD/USD is at .6914, up 0.0027 or +0.30%.

Although Aussie and Kiwi investors did not receive much in the way of economic data on Friday domestically or in the U.S., the price action was likely influenced by two-sided price action in the Treasury markets.

Early in the session, the AUD/USD and NZD/USD were under pressure because of firmer U.S. Treasury yields. Overnight, the yield on the U.S. Treasury note hit a new multiyear high overnight, returning to a level not seen since 2011.

The 10-year yield briefly hit 3.128 percent, its highest level since July 8, 2011 when the note yielded as high as 3.184 percent.

The 30-year bond yield also briefly hit a new high; it topped 3.2640 percent overnight, its highest level since October 3, 2014 when the 30-year yielded as high as 3.276 percent.

The short-covering rally in the Australian and New Zealand Dollars started to pick up steam early in the U.S. session after Treasury yields started to retreat from their highs. At the close, 10-year Treasury note yields were at 3.0600 percent, down 0.049 and 30-year Treasury bond yields were at 3.202, down 0.044.

The Aussie and the Kiwi were also pushed around by uncertainty over the outcome of trade negotiations between the United States and China. Additionally, the Kiwi received some support on export buying which wasn’t surprising since it did hit a five-month low earlier this week.

Despite the mixed trade on Friday, the AUD/USD and NZD/USD are likely to finish the week lower by 0.35% and 0.64% respectively.

In other news, the Australian Dollar is positioned to face further losses during the months ahead, according to the latest forecasts from the world’s largest investment bank, J.P. Morgan.

J.P. Morgan forecasts suggest any strength in the Aussie will likely prove to be short-lived as what will matter most for the Aussie Dollar are developments around domestic monetary policy, as well as interest rates elsewhere in the world.

“We expect both monetary policy divergence and minimal support from commodity prices to push the currency lower over time. We are also expecting the pace of domestic growth momentum to decline in the second half of 2018, after a boost from net exports in the first half of the year,” writes Sally Auld, chief Australia and New Zealand economist at J.P. Morgan, in a recent briefing.