AUD/USD and NZD/USD Fundamental Daily Forecast – Are Traders Concerned About Valuation or U.S. Interest Rates?

The Australian and New Zealand Dollars are trading lower shortly before the U.S. opening and the release of several U.S. economic reports with Non-Farm Payrolls being most important, followed by the ISM Manufacturing PMI.

U.S. Treasury yields remain under pressure and the odds of a Fed rate hike remain low, but these factors aren’t helping the AUD/USD or NZD/USD. This is because these Forex pair have issues of their own regarding valuation. Both the Australian and New Zealand Dollars are considered to be overvalued by their respective central banks.

The Aussie and Kiwi have to be one of the most difficult to follow recently. At times the price action is being directed by domestic economic data, U.S. economic data, their respective central banks and risk sentiment, since it is considered a higher-risk, higher-yielding assets.

Today the price action seems to be driven by investors who feel the currencies are overvalued. Later today, prices may be driven by U.S. economic data with the release of the Non-Farm Payrolls report at 1230 GMT.

Of the two, the charts appear to be indicating the Australian Dollar is stronger than the New Zealand Dollar. This is probably because the Reserve Bank of New Zealand has expressed its opinion about overvaluation with clarity and conviction.

Earlier in the week, RBNZ Governor Graeme Wheeler said that a lower New Zealand Dollar was needed to help bolster the export sector and push up inflation.

Wheeler also said there was a risk the housing market would take off again if the central bank removed its loan-to-value lending restrictions (LVRs), amid political pressure to rethink their use.

“A lower New Zealand Dollar is needed to increase tradables inflation and help deliver more balanced growth,” Wheeler said.

The New Zealand Dollar finished August with its worst monthly fall since January 2016, fueled in part by the central bank’s ramped-up rhetoric over recent weeks for a lower currency.

Investors may also be selling the Kiwi on speculation that the central bank cold intervene in the market, though many traders have said it is nowhere near close to that step.

Meanwhile, Australian Dollar traders may already be looking ahead to Tuesday’s Reserve Bank of Australia meeting. At the meeting, the RBA is expected to maintain its long-held neutral stance at a policy meeting, keeping its benchmark cash rate on hold for a 13^th straight month.

On Friday, investors will have the chance to react to a mountain of U.S. economic data. The major reports are Non-Farm Payrolls and ISM Manufacturing PMI.

The NFP report, due to be released at 1230 GMT, is expected to show the economy added 180,000 jobs in August. The unemployment rate is expected to remain the same at 4.3% and Average Hourly Earnings are expected to increase 0.2%.

ISM Manufacturing PMI will be released at 1400 GMT. It is expected to come in at 56.5.

Any misses to the downside in the NFP report, especially average hourly earnings, could be bullish for the AUD/USD and NZD/USD, at least temporarily.

The Aussie and Kiwi are likely to weaken if the headline number comes in north of 209,000, or if average hourly earnings increase by more than 0.2%.