AUD/USD and NZD/USD Fundamental Daily Forecast – Treasury Yields, Appetite for Risk Driving Price Action

The Australian and New Zealand Dollars rebounded after early session weakness on Monday to close higher for the session. The rally was fueled by another steep drop in U.S. Treasury yields. The yield on the benchmark 10-year Treasury note fell to its lowest level since 2017, making the U.S. Dollar a less-desirable investment. The plunge in yields was fueled by investors who continue to worry about global growth and a potential deceleration in the U.S. economy.

On Monday, the AUD/USD settled at .7113, up 0.0032 or +0.45% and the NZD/USD closed at .6909, up 0.0034 or +0.49%.

Both the Aussie and the Kiwi were weighed down early in the session by steep falls in Asian stocks, but they were able to recover late in the session, helped by a modest reduction in market volatility, modest gains in some commodity markets and another steep fall in U.S. bond yields.

U.S. Treasury yields continue to get pounded. The yield on the benchmark 10-year Treasury note fell to its lowest level in nearly 12 years as fixed-income investors continued to worry about the slowing global economy.

Those fears caused the Treasury yield curve to invert during the session, with the yield on the 3-month bill above that of the 10-year note. This phenomenon known as inversion is viewed by many as a recession predictor.

Not only was the yield on the benchmark 10-year Treasury note weaker, but yields on both the German 10-year bund as well as the Japanese 10-year traded in negative territory Monday.

Daily Forecast

At 01:38 GMT, the AUD/USD is trading .7123, up .7124 or -0.14% and the NZD/USD is at .6916, up 0.0009 or +0.14%.

Increased demand for riskier assets is helping to underpin the Aussie and Kiwi, but higher Treasury yields may be putting a lid on prices.

Earlier in the session, New Zealand posted a merchandise trade deficit of NZ$914 million in January, Statistics New Zealand said on Wednesday – marking the largest deficit on record for a January month.

That number was shy of expectations for a shortfall of NZ$300 million following the NZ$264 million surplus in December.

Exports added an annual 3.0 percent or NZ$128 million to NZ$4.40 billion, missing expectations for NZ$4.80 billion and down sharply from NZ$5.48 billion in the previous month.

Imports were up 7.7 percent on year or NZ$379 million to NZ$5.32 billion versus forecasts for NZ$5.00 billion and up from NZ$5.22 billion a month earlier.

For the year ended January 2019, annual goods imports were NZ$63.8 billion, while annual goods exports were NZ$57.4 billion and the annual trade balance was a deficit of NZ$6.358 billion.

Treasury yields and appetite for risk will dictate the direction of the AUD/USD and NZD/USD on Tuesday. Traders will also get the opportunity to react to a slew of U.S. economic reports including Building Permits, Housing Starts, Home Price Index and S&P/CS Composite-20 HPI.

Additionally, we’re going to see reports on Conference Board Consumer Confidence and the Richmond Manufacturing Index.

At 10:30 GMT, FOMC Member Charles Evans will speak.