AUD/USD and NZD/USD Fundamental Daily Forecast – Falling Crude Crushes Commodity-linked Currencies

The Australian and New Zealand Dollars closed lower against the U.S. Dollar on Thursday. U.S. Dollar investors were reacting positively to the Fed’s plan to shrink its balance sheet and a steep drop in crude oil prices.

The commodity-linked Aussie and Kiwi were under pressure after the OPEC-led group decided to extend their current production cuts nine months. This news was already priced into the market. Speculators decided to book profits on their long crude oil positions because they were looking for deeper cuts as well as the extension.

The AUD/USD close at .7453, down 0.0050 or -0.66%. The NZD/USD finished the session at .7022, down 0.0027 or -0.38%.

The U.S. Dollar also firmed on Thursday after investors had a change of heart to the Fed minutes released late Wednesday.

On Wednesday, the latest minutes from the Fed indicated that Federal Open Market Committee members were in broad agreement at their May 3 meeting to begin shrinking the Fed’s balance sheet. Initially, the USD/JPY weakened on the news, but the dollar began to strengthen early Thursday as investors began to understand the impact of the Fed’s plan.

Although the FOMC minutes said that most officials judged “it would soon be appropriate” to tighten rates again, supporting odds of a June hike, discussion that “it would be prudent” to ensure that evidence confirms the transitory nature of the First Quarter slowdown may throw some doubt into the timing of further hikes, traders said.

In New Zealand, according to Finance Minister Steven Joyce’s first budget, the New Zealand government expects to post a bigger-than-forecast budget surplus in 2017 and plans to invest the extra cash in infrastructure to fuel the growing economy.

In the U.S., Weekly Unemployment Claims came in at 234K, rising slightly from last week’s 233K read. Investors were looking for a read of 238K.

The U.S. Goods Trade Balance came in at minus 67.6 Billion. This was lower than the expected 64.7 Billion and the previous 65.1 Billion.

Preliminary Wholesale Inventories were down 0.3%. This was better than the 0.2% forecast and the revised 0.1% posted last month.

On Thursday, Federal Reserve Governor Lael Brainard said that a brighter global economy is posing less risk to the Fed’s outlook for the U.S.

“The global economy is brighter than it has been for the last few years,” Brainard said at a panel at the Center for Global Development.

Her comments seemed to reiterate the signal sent by the Fed in its May meeting minutes that the central bank is likely to move forward with an expected rate increase in June.

In the minutes, the central bank seemed to be implying that global risks were receding after years in which volatility in China, collapsing oil prices and slow growth in Europe slowed the Fed from planned rate increases.