AUD/USD and NZD/USD Fundamental Daily Forecast – Bank of Canada Rate Hike Supportive for Commodity-Linked Currencies

The Australian and New Zealand Dollars finished mixed on Wednesday as investors reacted to domestic data and increased demand for risky assets.

The AUD/USD settled the session at .8000, up 0.0004 or +0.05% and the NZD/USD ended the session at .7198, down 0.0036 or -0.49%.

The Aussie had a mixed reaction to the Australian GDP report on Wednesday. The report showed Australia’s quarterly economic growth rate more than doubled last quarter, but half the expansion was due to increased consumer spending, which itself was based on a potentially unsustainable drop in the savings rate.

Australia’s economy grew 9.8 percent in the three months to June, and 1.8 percent over the past year, according to the official gross domestic product numbers from the Bureau of Statistics.

The June quarter growth rate was a big pick-up from the 0.3 percent growth recorded in the first quarter of the 2017 calendar year.

However, there are signs that the current level of economic expansion might be unsustainable.

The report showed that domestic spending was a key contributor to growth, rising 1 percent over the quarter driven by a 0.7 percent rise in household consumption, which accounted for half of the overall increase in GDP.

The surprise in the report was that the spending came out of a dramatic decline in the household savings rate, which fell to 4.6 percent from 5.3 percent in the March quarter.

In other news, the U.S. Trade Balance came in at -43.7 billion. This was better than the expected 44.6 billion.

Final Services PMI came in slightly below expectations at 56.0. ISM Non-Manufacturing PMI was 55.3, below the 55.8 estimate and 53.9 previous read.

The Fed’s Beige Book reported that the U.S. economy expanded at a moderate pace through mid-August, but there were few signs of acceleration in inflation.

Forecast

The AUD/USD and NZD/USD are being influenced by their respective central banks which want to see lower prices because the higher priced currencies are hurting economic growth. They are also receiving a boost from increased demand for higher risk assets. This is helping to fuel the two-sided trade this week.

The Australian Dollar was helped by the Bank of Canada’s decision to lift interest rates for the second time in two months. Market participants figure the rate hike by a commodity-linked currency raises the risk of a rate hike by the central bank of another commodity exporter like the Reserve Bank of Australia and the Reserve Bank of New Zealand.

The Forex pairs were also supported by news that Donald Trump had struck a deal to extend the U.S. government’s debt ceiling for a further three months, helping to alleviate near-term fears of a shutdown that could hurt the U.S. economy.

In other news, the Australian AIG Construction Index came in below last month’s reading at 55.3. Retail Sales missed the estimate with a read of 0.0% and the Trade Balance came in below expectations at 0.46 billion.

The direction of the AUD/USD and NZD/USD are likely to be influenced by the European Central Bank’s monetary policy decision and ECB President Mario Draghi’s comments on a reduction in the bank’s quantitative easing program in the months ahead.