AUD/USD and NZD/USD Fundamental Daily Forecast – Underpinned by Trade Fears, Drop in Yields Could Provide Additional Boost

The Australian and New Zealand Dollars are trading higher early Monday with the bulk of the gains coming from the Aussie. Today’s session started steady with the U.S. Dollar boosted by last Friday’s strong U.S. labor market data, but increasing concerns about trade protectionism from the Trump Administration led to increased selling pressure on the Greenback in the Asian session.

At 0737 GMT, the AUD/USD is trading .7583, up 0.0014 or +0.19% and the NZD/USD is at .6990, up 0.0003 or +0.04%.

Earlier in the session, investors showed little reaction to better-than-forecast Australian retail sales data. The report showed retail sales rose 0.4% in April, beating the 0.3% estimate. The news came as a surprise after several months of lower-than-expected readings. However, it doesn’t represent a trend so traders didn’t get too excited about the news. Furthermore, it’s not expected to sway the Reserve Bank of Australia, which meets later this week.

Upbeat domestic data showing strong company profits also helped underpin the Aussie.

There is only one minor U.S. economic report today. Factory Orders are expected to come in at -0.4%, down from the previously reported 1.6%. This report has to miss badly to get any reaction from Aussie and New Zealand Dollar investors.

After the U.S. implemented tariffs on steel and aluminum last week against Canada, Mexico and the European Union, the parties involved placed tariffs on their own against a few U.S. goods. I think it’s a little too early to call this a “trade war”, but it certainly looks like a retaliation.

Over the weekend, finance leaders of the closest U.S. allies vented anger over the Trump administration’s import tariffs. Essentially, they gave Washington a “stern rebuke”. Pretty scary response….not. However, at next week’s G7 summit in Quebec, they are likely to vent even more anger since they will have more time to put together a response.

China and the U.S. ended another round of trade talks with the world’s second largest economy warning against further tariffs from the United States. Again, more words.

Forecast

Sentiment in the AUD/USD and NZD/USD changed in mid-May after the Fed minutes said the central bank would consider letting inflation rise above its 2.0 percent inflation target. This raised questions over future rate hikes. Treasury yields also hit their high for the year that day, helping to put bottoms in the two Forex pairs.

Even though Friday’s jobs report solidified a June Fed rate hike and raised the chances of additional rate hikes later this year, Aussie and Kiwi traders have already moved on from that report and are focusing on U.S. trade issues.

This is because a trade war could slow down the U.S. economy enough to raise concerns that the Fed won’t be as aggressive with rate hikes as previously thought. Based on this assessment, the AUD/USD and NZD/USD could rally further today if U.S. Treasury yields fall.