AUD/USD and NZD/USD Fundamental Daily Forecast – Tariff, Possible Trade War, Lower Demand for Risk Drives Kiwi Lower

The New Zealand Dollar posted a two-sided trade before closing lower on Thursday. The initial rally was fueled by the less-hawkish U.S. monetary policy statement and interest rate projections. The currency turned lower for the session in reaction to a drop in demand for higher risk assets.

The NZD/USD settled at .7207, down 0.0021 or -0.29%.

The Kiwi didn’t show much of a reaction when the Reserve Bank of New Zealand, led by Acting RBNZ governor Grant Spencer, kept its official cash rate unchanged at 1.75 percent and continued to signal that rates will remain on hold due to the lack of inflationary pressure. Spencer essentially passed the baton to new RBA Chair Adrian Orr.

Orr is expected to take control of the RBNZ next Tuesday and investors are keen to see the new policy targets agreement (PTA) that is expected to change the central bank’s long-held exclusive focus on inflation targeting to include an employment objective as well as what tone Orr will set.

Forecast

The New Zealand Dollar is trading a little better early Friday after early session weakness. There were no reports from New Zealand so most of the price action is likely related to position-squaring after Thursday’s steep sell-off.

At 0233 GMT, the NZD/USD is trading .7219, up 0.00123 or +0.18%.

The Kiwi was pressured on Thursday after President Trump’s announcement of $60 billion of tariffs on Chinese goods stoked concerns about a trade war.

Trump revealed the first steps in sanctions against China, signing a directive that indicates the U.S. deems China’s trade stance puts an unreasonable burden on U.S. commerce. At a media conference Trump said he saw the action as “reciprocal” – if they charge us, we charge them the same thing”.

China has said it will respond and may refer the U.S. moves to the WTO, a forum Trump may also appeal to.

In other news on Friday, FOMC Member Bostic is scheduled to speak. He could move the NZD/USD if he talks about the Fed’s monetary policy statement and economic projections. Hawkish talk should weaken the Forex pair. Dovish talk could be supportive.

U.S. Durable Goods are expected to come in at 0.5%, up from -0.3%. Durable Goods Orders are expected to rise 1.6%, up from -3.6%. New Home Sales are expected to come in at 621K.

Look for the elevated volatility to continue as investors await the next move from China.