AUD/USD and NZD/USD Fundamental Daily Forecast – NZD Pressured by Election Results; Trade Balance on Tap

Political uncertainty drove the New Zealand Dollar lower as the ruling National Party won the largest number of votes in a weekend election but failed to secure a ruling majority, with a protracted period of coalition building now a possibility. The decline in the NZD/USD was the currency’s biggest drop in about a month.

Nearly a week ago the Forex pair was hitting a 6 ½ week high as speculators were betting heavy on a ruling party victory. The situation has drastically changed with the price action indicating there could be some nasty negotiations.

The AUD/USD weakened in sympathy with the New Zealand Dollar. It was also pressured by lower demand for higher-yielding assets.

Flight-to-safety buying is also driving the Australian Dollar lower on Monday. Investors are reacting to reports that North Korea’s Foreign Minister Ri Yong Ho, accused President Trump of declaring war on the rogue nation. Ri was reacting to American bombers flying in international airspace east of North Korea in a symbolic show of military force on Saturday. He also said that North Korea could target planes even when they are not flying in North Korean airspace.

In other news affecting the U.S. Dollar, Federal Reserve Bank of New York President William Dudley said the U.S. central bank should maintain its gradual pace of policy tightenings as temporary factors holding down price pressures fade. This signaled the Fed remains on track to raise interest rates again in December.

Chicago Fed President Charles Evans offered a more cautious perspective on Monday. Speaking in Grand Rapids, Michigan, Evans said that he was “broadly comfortable” with the median estimate of the Fed’s quarterly projections, which showed its overnight policy rate ending 2019 at 2.7 percent.

Evans also said, “We (the Fed) should avoid taking policy steps that could be misread as a lack of concern over the inflation outlook. In my view, that would be a policy misstep that would further delay achieving our inflation objective.”

Later today, Federal Open Market Committee Member Neel Kashkari speaks at 2230 GMT.

Additionally, Reserve Bank of Australia Assistant Governor for Financial Stability Michele Bullock is scheduled to speak at 2115 GMT in a panel discussion in Sydney.

New Zealand is scheduled to release its latest Trade Balance data at 2145 GMT. It is expected to show a decline of 825 million. At 0000 GMT, ANZ will release its latest report on Business Confidence.