AUD/USD and NZD/USD Fundamental Daily Forecast – Yellen Testimony Could Set the Tone Today

The Australian and New Zealand Dollars are trading mixed as we approach the U.S. opening. Both started lower, but the New Zealand Dollar turned about to turn higher for the session.

At 1145 GMT, the AUD/USD is trading .7575, down 0.0019 or -0.26% and the NZD/USD is at .6908, up 0.0010 or +0.15%.

Traders are facing renewed volatility today with Fed Chair Janet Yellen scheduled to testify before Congress. Traders are likely to react to her remarks on monetary policy, the direction of interest rates and her assessment of inflation which has begun stubbornly muted.

The tax reform debate continues today with a vote in the full-Senate expected on Thursday. There are also rumors circulating of a possible government shutdown on December 8.

In a statement released early Wednesday, the Reserve Bank of New Zealand said it would ease the lending restrictions on home buyers and property investors starting in January.

The RBNZ said from the start of next year that it would increase the cap on banks from 10 percent to 15 percent for new mortgage lending to owner occupiers. Currently no more than 10 percent of loans can go to owner occupiers with a deposit of less than 20 percent. It will also ease the restrictions for investors.

The economic news was somewhat bearish for the AUD/USD and NZD/USD on Tuesday. The Conference Board Consumer Confidence report. It came in at 129.5, crushing the 123.9 estimate and 126.2 previous month’s read.

U.S. Federal Reserve Chair nominee Jerome Powell testified before the Senate Banking Committee on Tuesday, providing little ammunition for traders by sounding like his predecessor outgoing Fed Chair Janet Yellen.

During his Senate confirmation hearing Tuesday, Powell strongly hinted that the likelihood of a December rate hike is growing, however, he did not commit definitely to it. In his testimony, he also indicated that traders can expect more of the same from the Fed under his leadership, even though there is a new person in charge.

“The case for raising interest rates at our next meeting is coming together,” Powell told the Senate Banking Committee. “I think the conditions are supportive of doing that.”

The Senate Budget Committee advanced the Republican tax bill. Traders are now bracing for a full Senate vote on November 30. Goldman Sachs predicts a 50 percent chance of tax reform is likely this year and an 80 percent chance it gets done in 2018.

Forecast

Later today, investors will get the opportunity to react to U.S. economic data on Preliminary GDP, Pending Home Sales and the Fed’s Beige Book. FOMC Member William Dudley is also scheduled to peak. The main market moving event is likely to be the testimony of Fed Chair Janet Yellen. She could move the markets with remarks on monetary policy, interest rates and inflation. If she comes across as hawkish the AUD/USD and NZD/USD should decline.

Losses could be limited if talk of a government shutdown gains traction. This is something that investors haven’t planned for.

The key levels on the NZD/USD chart art .6852 and .6944. A sustained move under .6852 will signal the presence of sellers with a retest of .6780 possible. Taking out .6944 will extend the rally with .6980 the next target level.

AUD/USD traders should be watching .7588 and .7575. Aggressive counter-trend buyers have been trying to establish a support base inside these prices. I can build a bullish case for the Australian Dollar if it close over .7588. The weakness is likely to extend on a sustained move under .7575.