AUD/USD and NZD/USD Fundamental Daily Forecast – Widening Interest Rate Differential Sending Investors into US Dollar

The Australian and New Zealand Dollars closed slightly higher on Friday as emerging markets rebounded after several days of selling pressure. Technically oversold conditions may have also played a role in the rebound as well as profit-taking and positon-squaring ahead of the week-end.

Early in the session, traders showed little reaction to the New Zealand Building Consents report which rose 7.8%. Buyers may have been spooked by the downward revision to the previous month’s report. In Australia, Private Sector Credit rose 0.5%, better than the 0.4% forecast and previous read.

The AUD/USD finished the session at .7217, up 0.0012 or +0.17% and the NZD/USD closed at .6619, up 0.0006 or +0.09%.

Aussie and Kiwi traders were primarily tracking the rebound in emerging market financial assets throughout the session. Traders reacted to Chinese equity markets with the Shanghai Composite ending its trading session up by more than 1%. Strength in China-sensitive commodities, such as industrial metals, also helped give the currencies a boost. An early session rally in silver and a late session move by gold were also supportive. Given Australia’s significant trading relationship with China, the Aussie tends to broadly track developments in Chinese financial markets.

Little Reaction to U.S. Economic Data

Traders for the most part showed little reaction to U.S. economic data. The Personal Consumption Expenditures (PCE) index excluding the volatile food and energy components was unchanged in August after rising 0.2 percent in July.

The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.3 percent last month after an unrevised 0.4 percent gain in July. August’s increase in consumer spending was in line with economists’ expectations.

In August, personal income rose 0.3 percent after increasing by the same margin in July. Wages jumped 0.5 percent. The saving rate was unchanged at 6.6 percent last month.

Chicago PMI came in lower than expected at 60.4. The market had priced in a reading of 62.3

U.S. consumer sentiment came in just under expectations in the final reading of September. Nonetheless, the index remained near all-time high levels.

The University of Michigan’s monthly survey of consumers hit 100.1 in the final reading of September, below the 100.8 expected from economists. Sentiment among consumers rose from August’s final reading, when sentiment hit 96.2.

Despite the one-day reprieve, the outlook for the AUD/USD and NZD/USD remains bearish. The divergence between the monetary policies of the hawkish U.S. Federal Reserve and the dovish RBA and RBNZ is making the U.S. Dollar a more attractive investment.