AUD/USD and NZD/USD Fundamental Daily Forecast – New Zealand Employment Data Next Up

Concerns over rising U.S. Treasury yields continued to drive the Australian and New Zealand Dollars lower on Tuesday. The spread between U.S. Government Bond yields and Australian and New Zealand Government Bond yields continued to widen, making the U.S. Dollar a more attractive investment.

At 1731 GMT, the AUD/USD is trading .7489, down 0.0053 or -0.70% and the NZD/USD is at .7006, down 0.0033 or -0.46%.

In other news, U.S. Treasury yields rose on Tuesday as a Federal Reserve monetary policy meeting got under way. The two-year note yield climbed to 2.512 percent and hit its highest level since September 2008, when it hit 2.542 percent. The yield on the benchmark 10-year Treasury note was also higher at 2.977 percent, while the yield on the 30-year Treasury bond rose to 3.139 percent.

The major catalyst driving the Aussie and Kiwi lower is the divergence between the monetary policies of the U.S. Federal Reserve and the Reserve Bank of Australia and the Reserve Bank of New Zealand. Basically, the Fed is hawkish and ready to raise rates at least two more times this year while the RBA and RBNZ remain dovish with no plans to raise rates in the near future.

The Federal Open Market Committee (FOMC) began its two-day monetary policy meeting on Tuesday. Most investors are not expecting the central bank to tighten its policy. Expectations in the market for a rate hike are just 5.7 percent, according to the CME Group’s FedWatch tool.

However, traders will be looking at the monetary policy statement for clues about the central bank’s views on inflation and the economy. The statement may also reveal the central bank’s thoughts on future rate hikes. At this time, traders are pricing in a quarter-point rate hike for June.

In economic news, the ISM manufacturing index hit 57.3 in April. Home prices surged 7 percent higher in March compared with a year ago, making the gain the biggest since May 2014. Construction spending came in below expectations at -1.7%.

Early Tuesday, the RBA kept its benchmark interest rate unchanged at 1.5%, extending its record-breaking streak of policy inertia into a 19^th consecutive meeting.

The central bank also acknowledged that Australian employment growth has slowed recently, but it still expects unemployment to decline in the period ahead. Additionally, the RBA is unlikely to make major changes to its forecasts for GDP growth, unemployment and inflation in Friday’s Statement on Monetary Policy.

In New Zealand, the GDT Price Index fell 1.1%. The last report showed a 2.7% increase.

Early Wednesday, New Zealand will release its latest data on Employment Change, the Unemployment Rate and the Labor Cost Index.

The Employment Change report is expected to show a 0.5% increase. The Unemployment Rate is expected to drop to 4.4% and the Labor Cost Index is expected to show a slight rise to 0.5%.