AUD/USD and NZD/USD Fundamental Analysis – Forecast for the Week of November 28, 2016

The commodity-linked Australian and New Zealand Dollars posted modest gains last week as buyers may have taken advantage of the absence of institutional traders due to the U.S. holiday-shortened week and relatively firmer crude oil prices. Fear that the U.S. Dollar may be overvalued also helped underpin the Aussie and Kiwi.

The AUD/USD finished the week at .7432, up 0.0100 or +1.37%. The NZD/USD closed the week at .7038, up 0.0032 or +0.46%.

A 10% rise in iron ore futures over the past week was also responsible for last week’s rise by the Australian Dollar. Iron ore prices have advanced 75% over the course of 2016, improving the outlook for Australian miners.

The New Zealand Dollar may have received support from a better-than-expected Trade Balance report. It showed the deficit shrank to -846 million versus last month’s -1394 million read. The figure also came in under the -950 million estimate. Traders said that rising exports to China and Japan helped offset New Zealand’s trade deficit in October.

Exports to China were up 54 million New Zealand Dollars (37.85 million U.S. Dollars), or 7.9 percent. Exports to Japan were up 28 million NZ Dollars (19.62 million U.S. dollars), or 12 percent, led by rises in a range of commodities.

Forecast

The major U.S. institutional and bank Forex traders will return this week after taking off most of last week for the U.S. Thanksgiving holiday. This could affect the AUD/USD and NZD/USD greatly.

I expect to see volatility in the Forex pairs this week because of increasing concerns over the value of the U.S. Dollar. Although strong Federal Reserve rate hike bets have been supporting the U.S. Dollar and weakening the Aussie and Kiwi since Donald Trump was elected president, the Greenback may be running out of room to the upside.

The key reports that could influence the direction of U.S. interest rates and the dollar include U.S. Preliminary GDP on Tuesday. The ADP Non-Farm Employment Change on Wednesday. The ISM Manufacturing PMI on Thursday and the U.S. Non-Farm Payrolls report on Friday.

In New Zealand, investors will get the opportunity to react to the Reserve Bank of Australia Financial Stability report on Tuesday. Additionally, RBNZ Governor Wheeler is set to speak.

The major reports in Australia include Private Capital Expenditure and Retail Sales.

Traders should also prepare for volatility triggered by the OPEC production decision on Wednesday, November 30.

Again, traders should expect to see volatility this week. I am looking for a battle this week between those who think the Australian and New Zealand Dollars are undervalued and those who feel the U.S. Dollar still has room to the upside. The charts indicate that the AUD/USD has a new upside target at .7544. While NZD/USD speculators may try to drive the Forex pair back over last week’s high at .7085.