AUD/USD and NZD/USD Fundamental Daily Forecast – Two-Sided Trade Likely Ahead of Yellen’s Testimony

The Australian and New Zealand Dollars traded mostly flat on Monday before closing mixed. The lack of major economic reports gave traders an excuse to sit on the sidelines ahead of key two-testimony by Fed Chair Janet Yellen on Wednesday and Thursday and a report on U.S. consumer inflation on Friday. It’s also a light week as far as Australian and New Zealand data is concerned.

The primary focus for global investors remains the direction of interest rates. Traders are waiting for further confirmation of an additional interest rate hike by the Fed before the end of the year. At the same time, they are preparing for possible rate hikes by the Bank of Canada, the European Central Bank and the Bank of England.

The AUD/USD finished the session at .7605, up 0.0005 or +0.7%. The NZD/USD settled at .7275, down 0.0006 or -0.08%.

Despite the Reserve Bank of Australia and the Reserve Bank of New Zealand’s monetary policy statements and the financial markets signaling a neutral interest rate policy until at least 2018, the Australian and New Zealand bond yields have been creeping higher. The divergence in monetary policy should favor the U.S. Dollar. Yellen’s comments this week may shift the interest rate differential in the dollar’s favor. If this occurs then look for weakness in the AUD/USD and NZD/USD.

In other news, the NAB Business Confidence report increased to 9, slightly better than the previously revised 8. Today’s report indicates that the Australian economy is recovering after a sharp slowdown at the start of 2017.

In other news, the number of Australian home-loan approvals rose a seasonally adjusted 1.0% in May from April, the Australian Bureau of Statistics. This was the first rise in approvals since January. Economists were looking for a 1.5% rise for May.

Forecast

There are no major reports on Tuesday which will allow investors to prepare for the first day of Yellen’s testimony on Wednesday. This likely means another session of choppy, two-sided trading on below average volume.

Traders will get a chance to react to minor reports including the NFIB Small Business Index. It is expected to come in at 104.4, slightly below the previous month. The JOLTS Job Openings report is expected to show 5.98 million. This is also slightly below the previous 6.04 million. U.S. Final Wholesale Inventories are expected to come in unchanged at 0.3%.

FOMC Member Lael Brainard is also scheduled to speak at 1630 GMT. She is a noted dove so she may try to talk down the possibility of a Fed rate hike later in the year.