AUD/USD and NZD/USD Fundamental Weekly Forecast – Traders Likely to React to News About US-North Korea Meeting

The Australian and New Zealand Dollars settled mixed last week. The Australian Dollar rallied against the U.S. Dollar early in the week then held onto its gains into the close on Friday. The two-sided price action was fueled by a drop in U.S. interest rates and lower demand for risky assets.

The AUD/USD settled at .7547, up 0.0035 or +0.47%.

In other news, Reserve Bank of Australia Governor Philip Lowe said on Wednesday that the possibility of “something going wrong in China” is among the biggest economic risks faced by Australia. He was citing the build-up of debt in the world’s second largest economy.

The New Zealand Dollar also posted a two-sided trade against the U.S. Dollar last week, first spiking to its highest level since May 11 before settling slightly lower.

The NZD/USD settled at .6916, down 0.0004 or -0.06%.

The price action was fueled by a drop in U.S. Treasury yields and trade concerns over the U.S. and China. Traders also reacted to several reports from New Zealand. Retail Sales came in lower than expected at 0.1%. Core Retail Sales also missed the forecast, coming in at 0.6% versus 1.1%. The Trade Balance, however, improved to 263 million from -156 million. Economists had forecast a gain of 200 million.

Forecast

Australian and New Zealand Dollar traders have a lot on their table this week. Over the week-end there were developments over the meeting between the United States and North Korea. Last week, President Trump created a little volatility in the markets when he abruptly canceled the meeting. This news drew investors out of higher risk assets and into safe haven assets.

There are reports that the United States and North Korea are working hard to get the meeting back on track. This should reverse last week’s price action in stocks and gold. The Aussie is likely to be supported more than the Kiwi if there is increased demand for higher risk assets, but ultimately the direction of U.S. Treasury yields will determine the strength in the two currencies.

Treasury yields were pressured last week when the dovish Fed minutes said the central bank would allow inflation to move above its mandated 2 percent target. This means the Fed won’t be as aggressive with rate hikes as previous thought. Furthermore, it is helping to tighten the spread between U.S. yields and Australian and New Zealand yields, which is also supportive for the currencies.

This is also a big week for economic data. Monday is a U.S. holiday so there will be no trading. On Tuesday, investors will get the opportunity to react to the Conference Board’s Consumer Confidence report.

Wednesday will feature the ADP Non-Farm Employment Change report and Preliminary GDP.

The major report for the week is Friday’s U.S. Non-Farm Payrolls report. The Non-Farm Employment Change is expected to show the economy added 190K jobs in May. The Unemployment Rate is expected to remain at 3.9%. Average Hourly Earnings are expected to rise 0.3%.

ISM Manufacturing PMI is expected to come in at 58.2, up slightly from 57.3.