AUD/USD and NZD/USD Fundamental Daily Forecast- AUD Reversal Bottom Sets Up Short-Covering Rally

The Australian and New Zealand Dollar finished mixed on Tuesday but both continued to find support inside major technical support zones. This suggests that technical factors may be influencing the price action more than the fundamentals at this time.

The AUD/USD settled at .7834, up 0.0009 or +0.11% and the NZD/USD finished the session at .7158, down -.0036 or -0.50%.

There were no major U.S. economic reports on Tuesday. In Australia, the Reserve Bank of Australia left its benchmark interest rate unchanged for the 14^th straight month. In New Zealand, the GDT Price Index fell 2.4%.

Dictating the price action recently has been rising U.S. Treasury yields. This has helped tighten the spread between U.S. Government Bonds and Australian and New Zealand Government Bonds. This has helped make the U.S. Dollar a more attractive investment.

Tuesday’s price action was more about position-squaring ahead of Wednesday’s speech by Fed Chair Janet Yellen and Friday’s U.S. Non-Farm Payrolls report.

Forecast

It was another light schedule in Australia and New Zealand early Wednesday. In Australia, the AIG Services Index came in at 52.1, slightly below the previous 53.0. In New Zealand, ANZ Commodity Prices were 0.8% higher.

On Wednesday, the AUD/USD and NZD/USD are likely to be influenced by trader reaction to a number of economic reports including ADP Non-Farm Employment Change, Final Services PMI and ISM Non-Manufacturing PMI. Fed Chair Janet Yellen is also scheduled to speak.

The ADP report is often used to predict the outcome of the employment change number in the Non-Farm Payrolls report. It is expected to show the private sector of the economy added 131K jobs in September.

A larger-than-expected number should boost the chances of a rate hike and put pressure on the Aussie and Kiwi. However, we have to assume that this has already been priced into the market.

The ISM Non-Manufacturing PMI report is expected to come in slightly better than the previous report at 55.5. Once again a stronger number could pressure the Aussie and Kiwi.

Finally, investors will be listening to Fed Chair Yellen for clues about monetary policy and the direction of interest rates.

Look for the AUD/USD to strengthen on a sustained move over the major 50% level at .7848. This price level is likely to act like a pivot. If the upside momentum continues over the near-term then look for a possible move into .7944.

The NZD/USD could pick up strength on a sustained move over the major 50% level at .7188. This price level should also have pivot characteristics. If the developing rally can gain traction then .7289 will become the primary upside target.