AUD/USD and NZD/USD Fundamental Daily Forecast – Underpinned by Falling Treasury Yields, Capped by Trade War Concerns

The Australian and New Zealand Dollars are under pressure early Tuesday, weighed down by escalating tensions over trade between the United States and China and lower demand for higher-yielding assets. Losses are being limited by falling U.S. Treasury yields.

At 0509 GMT, the AUD/USD is trading .7411, down 0.0003 or -0.04% and the NZD/USD is at .6894, down 0.0002 or -0.3%.

On Monday, the currencies retreated after a report in Sunday’s Wall Street Journal that said President Trump plans to bar several Chinese companies from making investment in U.S. technology. The WSJ went on to say that the Trump administration wants to block additional technology exports to China. Trump is expected to make the announcement later this week.

Losses were limited, however, because the drop in U.S. equity prices sent investors scurrying for the safety of U.S. Treasury yields. This helped make the U.S. Dollar a less-desirable asset.

U.S. government yields dropped on Monday as investors fled higher risk assets as trade concerns continued to weigh on economic sentiment. The yield on the benchmark 10-year Treasury note fell to 2.88 percent, while the yield on the 30-year Treasury bond fell to 3.027 percent.

In U.S. economic news, sales of new U.S. single-family homes increased more than expected in May as sales in the South surged to their highest level in nearly 11 years.

According to the U.S. Commerce Department, new home sales jumped 6.7 percent to a seasonally adjusted annual rate of 689,000 units last month, the highest level since November 2017. April’s pace was revised down to 646,000 units from the previously reported 662,000 units.

Forecast

When trading the AUD/USD and NZD/USD, keep in mind there are forces driving the short-term action and forces controlling the long-term trend.

Short-term, the Aussie and Kiwi are being underpinned by falling U.S. Treasury yields. At the same time, lower demand for risky assets and the threat of an escalating trade war between the U.S. and China, are limiting the upside movement. This suggests a rangebound trade until one side gives a little more than the other.

Longer-term, the AUD/USD and the NZD/USD are bearish because of the divergence between the monetary policies of the hawkish U.S. Federal Reserve and the dovish RBA and RBNZ.

There were no major economic reports from Australia or New Zealand on Tuesday. In the U.S. traders face a slew of fresh economic data including the S&P/CS Composite-20 HPI, which is expected to come in at 6.9%.

The major report is the Conference Board Consumer Confidence. Traders are looking for a read of 127.6, down slightly from 128.0.

The Richmond Manufacturing Index is expected to come in at 15, down slightly from 16. FOMC Member Bostic is also scheduled to speak. He could move the market if he talks about the impact of a trade war on economic growth and Fed monetary policy.

Additionally, New Zealand Dollar traders seem to be reluctant to position themselves ahead of Thursday’s Reserve Bank of New Zealand interest rate decision and rate statement.