AUD/USD and NZD/USD Fundamental Daily Forecast – Global Yields Rising, but RBA, RBNZ Remain Neutral

A firmer U.S. Dollar is helping to put pressure on the Australian and New Zealand Dollars early Monday. Both currencies are reacting to higher U.S. Treasury yields and the possibility of another rate hike later in the year.

Sellers may be coming in after last week’s steep rally was fueled by surprisingly hawkish comments from central bankers at the European Central Bank, Bank of England and the Bank of Canada. They may be realizing that despite rising global yields, the Reserve Bank of Australia and the Reserve Bank of New Zealand are not likely to raise interest rates in the near future.

At 0621 GMT, the AUD/USD is trading .7670, up 0.0017 or -0.23% and the NZD/USD is trading .7305, down 0.0024 or -0.33%.

Australian Dollar traders may be squaring positions ahead of Tuesday’s Australian retail sales report and U.S. bank holiday.

Earlier today in Australia, the AIG Manufacturing Index came in at 55.0, slightly better than the previous 54.8. The MI Inflation Gauge rose 0.1%, up from 0.0%. Building Approvals were down 5.6%, well below the -1.2% estimate and 4.8% previous read. ANZ Job Advertisements were up 2.7%.

The report on Commodity Prices was just released at 0630 GMT. It came in at 25.0% and the previous report was revised lower to 30.1%.

Later in the week, the RBA will release its rate statement. The key question that needs to be answered when the RBA meets is whether it will join the hawks in calling for higher interest rates.

Futures trading has priced in only a 2 percent chance of a rate cut. Longer-term investors, however, are betting on a full 25 basis point hike in October 2018.

In my opinion, the RBA will change the language of its last statement to edge to the hawkish side from its neutral stance, but I don’t think it’s ready to change rates in the near future. It may even try to talk down its currency.

Given that the Reserve Bank of New Zealand has signaled rates will be on hold for until September 2019, the New Zealand Dollar’s strength is surprising. This divergence suggests the NZD/USD may be overvalued and ripe for a correction.

Short-term the Australian and New Zealand Dollars may move higher if the U.S. Dollar continues to weaken, but a stronger Greenback will put pressure on the AUD/USD and NZD/USD especially if their respective central bank officials try to talk down their currencies with dovish commentary.