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AUD/USD and NZD/USD Fundamental Daily Forecast -Prices Tumble in Reaction to Sharp Rise in U.S. Treasury Yields

By:
James Hyerczyk
Published: Jan 10, 2018, 06:38 UTC

The catalyst behind the price action today will continue to be the interest rate differential between government bonds.

AUD/USD and NZD/USD

A spike higher in U.S. Treasury yields helped drive the Australian and New Zealand Dollars lower against the U.S. Dollar on Tuesday.  The move in interest rates tightened the spread between U.S. Government Bonds and Australian and New Zealand Government Bonds, making the Aussie and Kiwi, less attractive investments. The price action also highlighted the divergence between the monetary policies of the U.S. Federal Reserve and the Reserve Banks of Australia and New Zealand.

The AUD/USD settled at .7823, down 0.0017 or -0.21% and the NZD/USD ended the session at .7160 or -0.19%.

AUDUSD
Daily AUD/USD

The catalyst behind the rise in U.S. Treasury yields was the Bank of Japan’s decision to trim the amount of its purchases of Japanese government bonds. This news raised speculation the central bank may be planning to wind back its monetary stimulus. Japanese Government Bond yields rose on the news, sending U.S. Government Bond yields sharply higher.

The news caught investors the markets off-guard because BoJ Governor Haruhiko Kuroda has repeatedly dismissed the chance of withdrawing stimulus any time soon, even as some policymakers have recently expressed concerns over the perceived demerits of monetary easing, especially the hit on financial institutions’ profit margins.

In other news, Australian Building Approvals soared 11.7% in December, trouncing the estimate for a 0.9% decline. November’s figure was revised downward to -0.1%. Additionally, ANZ Job Advertisements declined 2.3%. The previous month’s figure was revised lower to 1.1%.

NZDUSD
Daily NZD/USD

Forecast

The early price action in the AUD/USD and NZD/USD suggests the Forex pairs could continue to drift lower on Wednesday.

At 0623 GMT, the AUD/USD is trading .7813, down 0.0010 or -0.14% and the NZD/USD is at .7163, up 0.0003 or +0.04%.

The Aussie is attempting to post its third day of lower-lows after reaching its highest level since October 16 on January 5. The rally to .7874 fell just short of the October 13 main top at .7897.

The Kiwi posted a dramatic technical closing price reversal top on Tuesday at .7196. This top was just short of the October 17 main top at .7201. The subsequent confirmation of the potentially bearish chart pattern early Wednesday is a strong indication that the selling is greater than the buying at current price levels.

The catalyst behind the price action today will continue to be the interest rate differential between government bonds. The AUD/USD and NZD/USD could continue to feel pressure if the spread continues to tighten.

On Wednesday, investors will also get the chance to react to U.S. economic news covering Import Prices and Final Wholesale Inventories.

Traders will also be watching the Treasury auction of 10-year Bonds. Higher than expected yields could be bearish for the AUD/USD and NZD/USD.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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