AUD/USD and NZD/USD Fundamental Daily Forecast – Kiwi Plunges on Bearish Pre-Election Finance Update

A drop in demand for higher risk assets pressured the Australian and New Zealand Dollars on Wednesday. Investors ignored the weakness in U.S. Treasury yields which usually is supportive. A pre-election finance update from the National Party government of New Zealand also led to a steep sell-off by the Kiwi.

The AUD/USD closed the session at .7903, down 0.0007 or -0.08%. The New Zealand Dollar settled at .7222, down 0.0055 or -0.76%.

The NZD/USD fell nearly one-percent after the New Zealand government cut its economic growth forecasts in a pre-election finance update.

“The softer growth New Zealand has experienced in the six months to March flows through to a lower starting point in the 2017/2018 year,” says finance minister Steven Joyce in the Treasury’s Pre-election Economic and Fiscal Update 2017.

Joyce’s forecast that the NZ economy grew by 2.6% during the year to June, down from an earlier 3.2% forecast, while growth for the year to June 2018 is expected to be 20 basis points lower than earlier projections, at 3.5%.

Over the four-year forecast period, New Zealand’s economic growth is now seen averaging 3%, rather than the 3.1% previous predicted.

Joyce also said that the NZ budget surplus grew by $2.1 billion for the year just ended, but then announced reduced Treasury forecasts for the surplus over the four years to June 2021.

“However Treasury expects the lower growth forecast to result in surpluses that are $1.8 billion lower over the next four years,” Joyce added.

The news left traders weighing the possible implications the government’s projections may have for interest rate policy at the Reserve Bank of New Zealand. Translation:  Investors are worried the economy is not strong enough to warrant a near-term interest rate hike by the RBNZ.

Forecast

There were no major economic releases from Australia on Thursday. In New Zealand, the Trade Balance rose 85 million, much better than the -200 million forecast, but well below the previously reported 245 million.

In the U.S. on Thursday, investors will get the opportunity to react to the latest data on Weekly Unemployment Claims, Existing Home Sales and Mortgage Delinquencies. However, their main focus will be on Friday’s speeches at the central bankers’ symposium at Jackson Hole, Wyoming by European Central Bank President Mario Draghi and Fed Chair Janet Yellen.

The shift in momentum to the downside by the NZD/USD has investors focusing on the major support level at .7187. If this level is taken out with heavy selling pressure, the Forex pair could plunge to .7100 over the near-term.