AUD/USD and NZD/USD Fundamental Daily Forecast – NZ Supported by Surprise Rise in Business Sentiment

The Australian and New Zealand Dollars are trading higher early Wednesday. The strength is being attributed to a New Zealand survey which showed a surprising bounce in business sentiment in September from a decade low.

Traders seem to be shrugging off concerns over a potential escalation of the trade dispute between the United States and China. Instead, the focus is likely shifting to U.S. Federal Reserve activity later in the session at 1800 GMT.

At 0612 GMT, the AUD/USD is trading .7265, up 0.0015 or +0.21% and the NZD/USD is at .6666, up 0.0019 or +0.27%.

New Zealand’s Trade Balance deficit increased to $1.484 billion for the month of August, coming in more bearish than the forecast of -$930 million and even worse than the previous reading of -$196 million, which was also revised downward from -$143 million.

Traders blamed the increased cost of oil and diesel imports for pushing New Zealand’s trade deficit to a record monthly high in August.

Statistics NZ said the August trade deficit was $1.5 billion, equivalent to 37% of exports. The average monthly deficit in August over the last five years was $1 billion. The annual trade deficit widened to $4.8 billion in August, the highest in nine years.

Imports rose $675 million, or 14%, in August versus August 2017 reaching $5.5 billion, the third-highest total on record. Exports increased $366 million to $4.1 billion.

The biggest contributor to the rise in imports was petroleum and products, Statistics NZ said, which climbed $186 million, or 50%, year-on-year. This increase was led by a $98 million increase in crude oil, and a $73 million rise in diesel import costs.

The bullish news was ANZ Business Confidence. This is the report that triggered the rally in the NZD/USD. ANZ Bank’s headline business confidence index bounced 12 points to -38%, indicating that a net 38% of businesses expect conditions to deteriorate in the year ahead.

Forecast

At the conclusion of the Fed’s two-day policy meeting on Wednesday, the central bank is widely expected to raise its benchmark interest rate for the eighth time since December 2015. Investors have been counting on this rate hike for weeks, and have also begun to price in another rate hike in December. However, the number of rate hikes in 2019 remains a mystery.

The focus of Wednesday’s monetary policy statement and economic projections will be on the Fed policy outlook and on any comments surrounding the global trade dispute and its potential impact on future economic growth.

Investors will be watching closely to see if the Fed provides any signals as to where monetary policy will be heading over the coming months into next year.

The market is fearful that dovish rate hikes are a thing of the past. Traders will be watching the policy statement to see if the central bank removes the word “accommodative”. This would mean that the days of gradual rate hikes may be over. However, the Fed has to be careful with how it phrases things because it doesn’t want to crash the stock market, or stop economic growth.

A dovish Fed message will be bullish for the AUD/USD and NZD/USD. If traders perceive a hawkish Fed message then look for sellers to hit both Forex pairs.