AUD/USD and NZD/USD Fundamental Daily Forecast – Rangebound Until Brexit Breakthrough

The Australian and New Zealand Dollars are trading lower with the selling being driven by profit-taking after their recent rallies stalled at technical resistance areas. Uncertainty over Brexit and the lack of fresh news regarding U.S.-China trade relations may also be dampening investor interest in the long side. Helping to underpin prices is demand for higher-yielding assets.

At 07:21 GMT, the AUD/USD is at .6845, down 0.0009 or -0.13% and the NZD/USD is trading .6403, down 0.0021 or -0.33%.

The recent rallies by the Aussie and Kiwi were partly fueled by optimism over the progress being made over Brexit and a U.S.-China trade deal.

The Australian Dollar was further supported by a reduction in the chances of a Reserve Bank of Australia (RBA) rate cut in November, following hawkish comments from RBA Governor Philip Lowe.

The only explanation I have for the strength in the New Zealand Dollar is a short-squeeze since the Reserve Bank of New Zealand (RBNZ) is expected to cut its Official Cash Rate (OCR) in November.

The Aussie and Kiwi were also boosted by position-squaring in reaction to the jump in the chances of a Federal Reserve rate cut to 93.5% on October 30.

Aussie and Kiwi on Hold over Brexit

Movement in the Aussie and Kiwi has been limited since U.K. lawmakers pushed the pause button on Brexit. EU leaders on Wednesday considered whether to give Britain a three-month Brexit extension, and Prime Minister Boris Johnson said that if they do so he would call an election by Christmas.

The Australian and New Zealand currencies could become rangebound since there are still plenty of Brexit hurdles left, and Johnson’s ability to deliver on a “do or die” pledge to get Britain out of the EU by October 31 is in doubt, after parliament rejected a three-day timetable to enact his agreement.

What’s Happening at the Trade Talks?

That’s is what Aussie and Kiwi traders would like to know. The last official comment was on Tuesday when Chinese Vice Foreign Minister Le Yucheng said Beijing and Washington had achieved some progress in trade talks.

Since the currencies haven’t sold off this week, my guess is “no news is good news.”

Australian Economic Data

Aussie Flash Manufacturing PMI came in at 50.1, lower than the upwardly revised previous reading at 50.3. Flash Services PMI came in at 50.8, also below the 52.5 previous reading.

CBA Chief Economist, Michael Blythe said:  “The trade war and other uncertainties mean businesses are deferring capex and consumers are putting off spending. The resulting drop in production has pulled global manufacturing PMIs lower, taking services PMIs along for the ride. Australian manufacturing and service firms are not immune to these global trends. The ongoing weakness in the flash PMI readings for October should be judged against this global backdrop. Australia is faring a little better than the global trend. PMI readings remain in expansion territory, albeit just. Employment is still growing and longer-run expectations are still positive”.

Daily Forecast

Later today, Aussie and Kiwi traders will get the opportunity to react to the latest U.S. Core Durable Goods Orders, Durable Goods Orders and weekly Unemployment Claims reports at 12:30 GMT.

At 13:45 GMT, Flash Manufacturing PMI and Flash Services PMI reports will be released. At 14:00 GMT, look for a report on New Home Sales.

The AUD/USD and NZD/USD are likely to remain rangebound until there is an announcement on Brexit.