AUD/USD and NZD/USD Fundamental Daily Forecast – Traders Reacting to Hawkish Central Bank Remarks

The Australian and New Zealand Dollars soared on Thursday as speculators reacted to hawkish remarks from European Central Bank, Bank of England and Bank of Canada officials. I believe the specs think if these three central banks are talking about raising interest rates then the Reserve Bank of Australia and the Reserve Bank of New Zealand are also going to start considering raising rates sooner-than-expected.

The AUD/USD settled at .7637, up 0.0055 or +0.73% and the NZD/USD closed the session at .7304, up 0.0037 or +0.50%.

Although the European Central Bank is saying that investors misinterpreted remarks by ECB President Mario Draghi on Tuesday, he’s still being widely credited with igniting the EUR/USD rally, when he said that the ECB could trim its stimulus this year.

Bank of England Governor Mark Carney also made hawkish remarks about interest rates on Wednesday. The British Pound rallied after Carney said that the central bank is likely to need to raise interest rates as the British economy comes closer to operating at full capacity.

Finally, a pair of officials from the Bank of Canada also suggested the central bank could raise rates sooner-than-expected.

In other news, it was a mixed day as far as U.S. economic reports were concerned. The Goods Trade Balance came in at -65.0 billion. This just missed the -66.2 billion forecast. It also came in lower than the previous read. The slight narrowing of the deficit was actually good for the U.S. Dollar.

Preliminary Wholesale Inventories were a little bearish, increasing by 0.3%, higher than the 0.2% forecast. Last month’s number was revised from 0.1% to -0.5%.

Pending Home Sales were a big disappointment, falling 0.8% versus an estimate of a 0.9% gain. Last month’s report came in lower at 1.7%. Traders said fewer buyers signed contracts to buy existing homes in May, likely because they can’t find or afford what they want.

Forecast

The current price action in the AUD/USD and NZD/USD suggest that investor sentiment has shifted and I believe it’s all tied to the hawkish talk this week from several central banks. I think speculators are betting that the RBA and RBNZ are not going to be left in the dust when the other major central banks start raising interest rates.

Later today, the U.S. is going to release its quarterly GDP data at 1230 GMT. It is expected to come in up 1.2%. The Australian and New Zealand Dollars could strengthen if the GDP number comes in lower than expected. A stronger than expected number will solidify that chances of a rate hike later this year. This should raise Treasury yields, which would make the U.S. Dollar a more attractive investment.