AUD/USD and NZD/USD Fundamental Daily Forecast – Rising U.S. Treasury Yields Bearish for Aussie, Kiwi

A recovery by the U.S. Dollar, driven by rising U.S. Treasury yields is helping to drive the Australian and New Zealand Dollars lower on Tuesday, shortly before the U.S. opening.

At 1030 GMT, the AUD/USD is trading .7778, down 0.0027 or -0.34% and the NZD/USD is at .6924, down 0.0040 or -0.58%.

The early price action is being primarily driven by a tightening of the interest rate differential between U.S. Government Bonds and Australian and New Zealand Bonds. This is helping to make the U.S. Dollar a more attractive investment.

Additionally, the divergence between the monetary policies of the U.S. Federal Reserve and the Reserve Bank of Australia and the Reserve Bank of New Zealand is favoring the U.S. Dollar at this time.

Forecast

In addition to the stronger U.S. Dollar, the New Zealand Dollar is likely to continue to feel pressure from the change in government. Earlier today, the Kiwi suffered a fresh setback after the country’s incoming Labour government outlined its left-leaning priorities, including a clamp-down on foreign buyers of local housing.

The NZD/USD has fallen sharply and this trend is likely to continue due to upcoming changes in the economy. Recently, Prime minister-elect Jacinda Ardern laid out policies that some investors worry could threaten the country’s strong economic track record.

These policies include cutting back on immigration, raising the minimum wage and altering the mandate of the Reserve Bank of New Zealand to include employment and not just inflation.

In the U.S. today, investors will get the opportunity to react to the latest data on Flash Manufacturing PMI, Flash Services PMI and the Richmond Manufacturing Index.

Early Wednesday, Australia will release its latest data on consumer inflation. It is expected to show a quarterly increase of 0.8%, must higher than the previous read of 0.2%. The Trimmed Mean CPI is expected to come in unchanged at 0.5%.

Despite the expected jump in CPI, the number is not expected to sway the RBA from maintaining its neutral policy.

Traders will also be watching today’s U.S. Treasury auctions. The Treasury is set to auction $45 billion in four-week bills and $26 billion in two-year notes.

There are no major speeches from the Fed today, but Trump’s appointment of a Fed Chair is likely to continue to be a topic of conversation.