AUD/USD and NZD/USD Fundamental Daily Forecast – Reaction to Aussie GDP Suggests Investor Indecision, Impending Volatility

The Australian and New Zealand Dollars are trading nearly flat following the release of the Australian GDP report. Both currencies are posting inside moves which suggests investor indecision and impending volatility.

At 0819 GMT, the AUD/USD is trading .7992, down 0.0004 or -0.05% and the NZD/USD is at .7237, up 0.0003 or +0.04%.

Today’s price action suggests a mixed reaction to the GDP data. Traders are also torn between selling pressure from a decline in demand for higher-yielding assets and buying pressure related to weakness in U.S. Treasury yields.

Wednesday’s GDP report showed Australia’s economy rebounded last quarter as consumers and government spent freely after a weather-beaten start to the year, while a long downturn in mining investment finally loosened its deadening grip on growth.

The GDP report showed the economy expanded 0.8 percent in the second quarter, up from 0.3 percent in the first quarter and outpacing even the much-vaunted U.S. recovery.

Despite the fact that Australia’s economy is enjoying its longest-ever expansion, the Reserve Bank of Australia said it would not raise rates because of low inflation and spare capacity in the labor market. Inflation is currently below 2 percent; unemployment is below longer-term averages; and consumers and businesses are spending.

The GDP data along with the inflation and labor market data indicates that the economy doesn’t need to be slowed down or sped up by policy changes like movements in interest rates. This is also the view laid out by RBA Governor Philip Lowe in a speech on Tuesday. This also means the RBA is applying the appropriate policy.

Forecast

The AUD/USD and NZD/USD are likely to continue to react to the direction of U.S. Treasury yields and investor sentiment. The movement in U.S. Treasury yields is being fueled by economic data and Fed speakers. Investor sentiment is being controlled by geopolitical events surrounding North Korea.

On Wednesday, investors will get the opportunity to react to a few minor U.S. reports and one major. Minor reports include Trade Balance, Final Services PMI and the Fed Beige Book. The major report is the ISM Non-Manufacturing PMI. It is expected to come in at 55.8, up from 53.9.

The AUD/USD is in an uptrend and the NZD/USD is in a downtrend, but technical momentum may be shifting to the upside. The rally by the Australian Dollar is being fueled by actual buying. The current rally by the New Zealand Dollar is mostly short-covering.

Both the Aussie and the Kiwi could turn bullish if the situation with North Korea calms down like it did last week and U.S. Treasury yields remain under pressure. We could continue to see mixed performances by the two currencies if the pressure continues on higher-yielding assets and Treasury yields continue to weaken.

Sellers could take control if they react to the Reserve Bank of Australia’s and the Reserve Bank of New Zealand’s warnings that their overpriced currencies are hurting the economy.