AUD/USD and NZD/USD Fundamental Daily Forecast – Most Sensitive to U.S. Treasury Yields

The early price action by the Australian and New Zealand Dollars suggests these markets are looking for guidance today, but they are going to have trouble finding any due to the lack of fresh economic data from the U.S.

Several Fed speakers are on tap including Patrick Harker at 1400 GMT. On May 12, he said the U.S. economy is now “normal” and its labor market is roughly “at full health.” This essentially means he supports two or more interest rate hikes this year.

“Things are looking good, we’re essentially at normal now and … I continue to see two more rate hikes as appropriate this year,” Harker said 10 days ago.

In light of the recent weaker-than-expected economic data and the events in Washington, investors will be listening to see if he deviates from his support for two or more rate hikes.

FOMC Member Neel Kashkari is scheduled to speak at 1430 GMT. He is expected to deliver a speech on economic inequality issues.

At 2300 GMT, FOMC Member Lael Brainard speaks and early Tuesday at 0110 GMT, FOMC Member Charles Evans will deliver his speech.

The Aussie and Kiwi will continue to be particularly sensitive to the movement in the U.S. Dollar and U.S. Treasury yields. The AUD/USD and NZD/USD traders have not been too reactive to the volatility in the higher risk and safe haven markets. Their primary focus has been on the spread between U.S., Australian and New Zealand Bond yields.

The Reserve Bank of Australia and the Reserve Bank of New Zealand have made it clear that they are neutral and not likely to move interest rates in either direction. The Fed is on-tract to raise rates in June, but the market is starting to reduce the odds of this rate hike and the number of future rate hikes. This is what has been driving the AUD/USD and NZD/USD higher.

Position-squaring and short-covering are likely behind the strength in the Forex pairs so don’t expect any major changes in trend over the near-term. That is unless the U.S. Dollar continues to get hammered because of the turbulence in Washington.