AUD/USD and NZD/USD Fundamental Daily Forecast – Slew of Bearish Factors Weighing on Aussie, Kiwi

The Australian and New Zealand Dollars are trading lower mostly in reaction to increased trade tensions between the United States and China, the weaker Yuan and the hawkish comments from the U.S. Federal Reserve last Wednesday.

At 0632 GMT, the AUD/USD is trading .7388, down 0.0018 or -0.23% and the NZD/USD is at .6778, down 0.0013 or -0.19%.

There wasn’t any fresh economic data from New Zealand, but Australia released better-than-expected trade balance data. However, this news wasn’t strong enough to change the bearish sentiment.

According to the Australian Bureau of Statistics, Australia’s trade balance is at a surplus of $1.87 billion for June, marking a substantial increase from the $725 million surplus recorded in May. Exports were up three per cent for the month while imports were one percent lower.

Trade tensions were heightened after the Trump administration announced on Wednesday it is looking at the possibility of slapping a 25 percent tariff on $200 billion worth of imported Chinese goods, up from the initial 10 percent announced on July 10. China responded by saying that blackmail will not work on them and that they would retaliate against the U.S. if additional trade measures are imposed.

With a possible escalation of trade tensions looming, investors bought into the dollar and sold currencies linked to China’s economic fortunes. The move took place as a survey showed China’s factory sector grew at the slowest pace in eight months in July as export orders declined yet again. This may have prompted China’s central bank to set the currency at its weakest since May last year.

Finally, the Federal Reserve concluded a two-day meeting on monetary policy and left interest rates unchanged. The decision was widely expected, but the central bank upgraded its view on the economy calling it “strong”.

Forecast

With the Australian and New Zealand Dollars seen as a proxy for Chinese growth because of Australia’s and New Zealand’s big export sectors, any weakness in China’s economy is likely to spill over into the Australian and New Zealand economies. This could slow down growth which should push any decisions from their central banks to raise rates further into the future.

The Fed’s assessment of the economy and its hawkish Federal Reserve statement, raised the chances of a September interest rate hike to 91.4 percent and the probability for another move in December to 68.2 percent.

This news drove U.S. Treasury yields higher while highlighting the divergence in monetary policies between the hawkish U.S. Federal Reserve and the dovish Reserve Banks of Australia and New Zealand, making the U.S. Dollar a more attractive investment.

The current downside momentum in the AUD/USD and NZD/USD suggests the Forex pairs should be under pressure all day. We’re also looking for last week’s lows at .7359 and .6762 respectively to fail.

U.S. economic reports today include the Challenger Job Cuts, Weekly Unemployment Claims and Factory Orders. None of these reports should be strong enough to turn the AUD/USD and NZD/USD higher especially ahead of Friday’s major U.S. Non-Farm Payrolls report.