AUD/USD and NZD/USD Fundamental Daily Forecast – Kiwi Surges as Specs Bet on Aggressive RBNZ Rate Hikes
The Australian and New Zealand Dollars are edging higher following a strong surge the previous session.
Aussie traders are downplaying the weak manufacturing data in November and are instead focusing on the less-hawkish comments from Federal Reserve Chair Jerome Powell the previous session.
Kiwi buyers are playing the bullish divergence in monetary policy between the hawkish Reserve Bank of New Zealand (RBNZ) and the not-so-hawkish U.S. Federal Reserve.
At 03:08 GMT, the AUDUSD is trading .6799, up 0.0011 or +0.17% and the NZD/USD is at .6320, up 0.0023 or +0.36%. On Wednesday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $67.13, up $0.94 or +1.42%.
Powell Ignites Late Session Rally after Signaling Smaller Rate Hikes
The AUDUSD and NZD/USD are being underpinned early Thursday after Federal Reserve Chairman Jerome Powell confirmed Wednesday afternoon that smaller interest rate increases are likely ahead even as he sees progress in the fight against inflation as largely inadequate.
Echoing recent remarks from other prominent central bank policymakers and comments at the November Fed meeting, Powell said he sees the Fed in position to reduce the size of rate hikes as soon as next month.
Ahead of Powell’s speech, the markets were pricing in about a 65% chance that the Fed would step down its interest rate increases to half of a percentage point in December. Following Powell’s speech, the probability for a half-point move rose to 77%.
Australian PMI: Demand Drags Down Manufacturing in November
The Australian Industry Group Australian Performance of Manufacturing Index (Austrian PMI) fell 4.9 points to 44.7 in November, indicating deteriorating conditions. This is the first month of contraction following three months of flat conditions.
“There are now signs of a slowdown in Australian manufacturing. Demand conditions in the market declined in November as deteriorating national and global economic conditions weighed on the industry, “Innes Wilcox, Chief Executive of Ai Group said.
Kiwi Buying Strong as Specs Bet on Another Aggressive RBNZ Rate Hike
Last week, the Reserve Bank of New Zealand (RBNZ) raised its official cash rate by a record 75 basis points to a near 14-year peak of 4.25% as it struggles to contain inflation currently running near three-decade highs.
At this time, the financial markets are leaning toward another hike of 75 basis points in February, and have fully priced in a peak of 5.5% by July next year.
With the RBNZ raising rates in 75 basis point increments and the Fed likely to hike only 50 basis points in December. The NZD/USD has become the most attractive currency, which is why we are seeing it strengthen.