AUD/USD and NZD/USD Fundamental Daily Forecast – Pressured by Risk-Off Tone

Good old-fashioned risk aversion is pressuring the Australian and New Zealand Dollars on Monday. It wasn’t one particular event that fueled the early session selling pressure, but rather a number of factors that may have encouraged investors to shed risky assets.

Traders want to point a finger at Friday’s mixed U.S. Non-Farm Payrolls report as the reason for today’s weakness, however, it could be a number of factors shaking the tree including Brexit concerns, U.S.-China trade relations, the Fed minutes and worries over the Euro Zone economy.

At 07:00 GMT, the AUD/USD is trading .7100, down 0.0006 or -0.08% and the NZD/USD is at .6733, down 0.0003 or -0.03%.

Central Bank Policy Still Main Catalyst

Two words sum up today’s price action:  risk aversion. As stated earlier, this is a short-term reaction to numerous events. Longer-term, central bank policy steers the currencies.

Last week, the Reserve Bank of Australia (RBA), left interest rates unchanged at 1.50 percent with additional dovish language that pressured the AUD/USD. While the RBA implied it would remain neutral toward a change in rates as it waits for a strong labor market and higher inflation to pull the economy out of its rut, futures traders increased the odds of a rate cut by August at 100%, up from 90%.

Two weeks ago, the Reserve Bank of New Zealand said its next move in interest rates would be down. Traders are also pricing in a rate cut for August with some saying it may come as early as May.

Daily Forecast

If the early price action is any indication, today’s trade in the Australian and New Zealand Dollar’s will be dictated by investor demand for risky assets. A stock market recovery will be the best sign that investors are once again willing to take on risk. If the selling pressure continues then the Aussie and Kiwi are likely to remain capped.

Traders are also monitoring the price action in the safe-haven U.S. Treasurys and the Japanese Yen. As long as they continue to attract investor capital, traders will be reluctant to buy the commodity-linked Australian and New Zealand Dollars.